When reminiscing about the tumultuous landscape of the stock market in 2023, it’s nearly impossible to ignore the meteoric rise of Nvidia (NASDAQ: NVDA) and the unstoppable surge of artificial intelligence (AI) technologies. By the year’s end, Nvidia had ascended to a staggering $500 per share, a lofty sum for investors seeking to procure whole shares. But what lies ahead? Will Nvidia initiate a stock split in 2024, potentially reducing the share price and making it more accessible to a wider investor base? Let’s delve into the undercurrents of this intriguing scenario and shed light on what investors should consider in the upcoming year.
The Case for a Nvidia Stock Split
Anticipating a stock split is not so much a complex equation as it is an exercise in reading the tea leaves, and several indicators suggest that Nvidia might be on the cusp of splitting its stock. Nvidia has a historical precedent of enacting stock splits. The concept of a stock split involves altering the share count without affecting the overall market capitalization. Consequently, an increase in the number of shares leads to a decrease in the value per share.
Looking back, Nvidia orchestrated its most recent split in 2021 when its shares were trading at $744 before the split. Although the current share price is not quite as exorbitant, hovering at $500, the trajectory is veering within close proximity. Between 2000 and 2007, Nvidia engaged in four other stock splits, during which shares soared by a striking 334% over seven years. It seems evident that management aims to preserve an appetizing share price for the majority of investors.
The explosive expansion of AI throughout 2023 has solidified a growth narrative around Nvidia that promises to extend well into the future. This impending trajectory of their fundamental standing potentially signals an inevitable Nvidia stock split—timeliness seeming to be the only variable in question.
Unveiling the Truth about Stock Splits
Understanding the dynamics of stock splits is quintessential for any investor. Splits primarily serve to decrease the trading price of a stock. While this lowers the cost of owning a stake in the company, it does not inherently alter the stock’s intrinsic value. Essentially, a stock split merely diminishes the share price by segmenting the stock into multiple shares.
In purely illustrative terms, envision craving a delectable pie. You encounter a sumptuous pie priced at $40, available as two halves at $20 each. Preferring a smaller slice, you beseech the establishment to slice the halves further, transforming it into four quarters retailing at $10 each. Consequently, your investment yields a reduced share price for a smaller slice of the business, without altering the overall value. For investors unable to afford an entire share, exploring fractional shares might be a viable alternative.
Investing in Nvidia for the Future
Investing in Nvidia should be fundamentally rooted in an appreciation for its business trajectory rather than being contingent on any manipulations in share count. Promisingly, Nvidia emerges as an appealing long-term prospect, standing as the unrivaled maestro in AI chips—an integral component in colossal data centers processing arduous computational workloads.
With revenue surging by 200% in their most recent quarter and analysts forecasting an average annual earnings growth of 42%, Nvidia presents an enticing long-term investment. Despite its monumental upsurge in 2023, the stock trades at a forward P/E of merely 40. The resulting PEG ratio of 1 signifies that the stock is undervalued, given the long-term growth estimates.
While no stock is devoid of risk, it is inevitable that competition will encroach upon Nvidia’s territory, impinging on growth projections. Nonetheless, investors striding with a long-term horizon ought to be handsomely rewarded.