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Nvidia (NASDAQ:NVDA) Stock prices seem unstoppable. The company’s dominance in artificial intelligence (AI)-enabled chips and insatiable demand for the technology have driven its stock price up nearly 300% over the past 12 months.
With the stock approaching $1,000 per share, investors may wonder if a stock split is imminent. Despite the fact that such a move will not directly impact NVIDIA’s valuation, investors should expect it in the near future. Here’s why:
Nvidia and stock split
Nvidia stock’s history is perhaps the most compelling reason to expect a split in the near future. The company has split its stock five times since 2000, including one after his AI and data centers renewed investor interest in GPUs.
The last split took place on July 19, 2021, when NVIDIA implemented a 4-for-1 stock split. Interestingly, the stock closed that day at a pre-split price of around $744 per share, lower than its current price.
Still, NVIDIA stock is up about 85% this year and nearly 30% in the last month alone, indicating that the need for a breakup may have caught the company’s board of directors off guard, so investors It’s worth remembering that these gains came quickly.
Big questions surrounding the split
Additionally, perhaps the most important question surrounding the split is where the company will set the split ratio. The most recent 4-for-1 split is the largest in the company’s history, and the company previously approved three 2-for-1 splits and one 2-for-3 split in the 2000s.
However, as mentioned above, recent growth has probably exceeded expectations. While future growth may not match the 126% revenue increase seen in fiscal 2024 (ending January 31), analysts expect revenue growth of 81% in fiscal 2025 and 22% next fiscal year. This indicates that the large increase in profits should continue for some time.
That could probably mean the stock price rally isn’t over. Conversely, slowing growth could quickly dampen enthusiasm for the stock, and the company’s board will need to take into account the significant decline in the stock price over the past few years. Therefore, companies must prepare for potential price fluctuations when determining the split ratio.
Another possible consideration
Investors may also want to consider another possible factor: inclusion as one of the 30 stocks that make up a stock index. Dow Jones Industrial Average.
The S&P Dow Jones Indices are operated by: S&P Globalhas not signaled its intention to add Nvidia to the Dow 30. Also, the index already includes two semiconductor stocks. apple and intel.
However, Inter have struggled in recent years and the possibility of him being sacked is increasing. Additionally, AI’s influence on the economy could lead to more tech stocks being included in the index, and Nvidia’s $2.2 trillion market capitalization makes it a likely choice.
Additionally, the Dow 30 is a price-weighted index. Because the nominal stock price determines a stock’s weight in the Dow Jones Industrial Average, companies often initiate stock splits to reduce their influence on the index. If Nvidia seeks to enter the Dow 30, it may change its split ratio to increase its chances of adoption.
Understanding the possibility of stock splits
Given the company’s history of stock splits, investors should expect such a move sooner or later. Also, the split ratio would probably be the most important issue surrounding such a move, as the last split was made three years ago at a lower price.
In fact, NVIDIA’s board will likely need to consider stock price history, both positive and negative, when determining this ratio. Also, assuming NVIDIA is going to become a Dow 30 stock, it needs to be more sensitive to its nominal stock price.
After all, the stock split doesn’t change anything for Nvidia on the surface. However, given the company’s history, shareholders should expect a split and possibly increased interest in the stock from unexpected parties.
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Will Healy has a position at Intel. The Motley Fool has positions in and recommends Apple, Nvidia, and S&P Global. The Motley Fool recommends Intel and recommends the following options: These are a long call on Intel at $57.50 in January 2023, a long call on Intel at $45 in January 2025, and a short call on Intel at $47 in May 2024. The Motley Fool has a disclosure policy.
Nvidia Price Continues to Rise — Is it headed for a stock split? Originally published by The Motley Fool
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