Shares of the top stocks in the S&P 500 rose tenfold on Friday.
After the market closed, Nvidia stock was split 10-for-1, which was announced in May during the company's most recent conference. Earnings call, entered into force. But it won't do much to change the company $3 trillion valuation Or its underlying fundamentals, which, so far, have made investors lick their chops.
“You and I both know that stock splits are just cosmetic, at least for existing shareholders,” says Paul Meeks, a veteran technology investor and business school professor at the Citadel, a military college. “Through its investor relations routine, Nvidia is well aware that it has to continue to provide some benefits” to investors.
Few other companies have embodied the new order of corporate hierarchy that has led to the spread of artificial intelligence quite as well as Nvidia has. Company stock It has risen 3,174% over the past five years and 218% in the past year alone. During its epic run, Nvidia Market value increased Past proverbs Amazon And the alphabet. Before the 10-for-1 split, the stock was at a stratospheric $1,209.
This price is probably too high for most investors, for sure Small investors The goal of the split was to attract users, according to Humayun Sheikh, CEO of startup Fetch.ai, which provides developer tools specifically for artificial intelligence. “The stock split enhances Nvidia’s attractiveness by making shares more accessible to everyone, thus expanding the investor base,” he said.
Sheikh also sees the move, at least in part, as having to do with investor perceptions, saying it is likely “influenced by optics” and could accelerate market capitalization gains.
Nvidia's position as a company that has surrounded the market Providing AI developers with all the chips and computing power they need doesn't change because of the stock split. In the first quarter, Nvidia Sales increased 262% Annually to $26 billion, exceeding Wall Street's already lofty expectations.
Nvidia's stock rally is also a sign of what the AI boom could be in store.
“The change in Nvidia's price over the past year tells us something about the market, which is that perhaps AI is the new general-purpose technology, like the Internet or electricity, that will have massive productivity implications throughout the economy, and so AI companies will… “You'll benefit a lot,” says Dhar, NYU Business School professor.
What could go wrong with an Nvidia stock split?
However, investors are considering some scenarios in which things could go south after a stock split, until They also admit that the odds are slim.
For MIX, the only thing that can stop Nvidia March to the top It's an economy-wide slowdown, which he considers unlikely because he expects the U.S. to avoid a recession and the Fed will cut interest rates in early 2025. In fact, he's already thinking about Nvidia's performance if the economy improves.
“It would be difficult for these stocks to give up their gains if we suddenly went from having the wind in our face with high interest rates to having the wind at our back with low interest rates,” Meeks said.
Meanwhile, Sheikh said the retail investors that the split was supposed to attract are another possible, but unlikely, concern. Individually, retail investors may hold small amounts of Nvidia stock. But collectively, they can make up a significant portion of the stock. So any shocks to the system or unexpected changes in their views of the company can have a noticeable impact. One need not look any further GameStop To understand Large effect size Retail investors can get access to the market.
Reducing the share price to a tenth of its price may be a double-edged sword. “This approach may appeal to Robinhood-type investors or meme stock enthusiasts,” Sheikh added. “However, if the narrative turns against Nvidia and speculative traders start selling, it could negatively impact the price.”
But even if this unwelcome scenario occurs, it will not change all the market trends that support the chip maker.
“Nvidia has already seen significant price appreciation, so any tailwinds from a stock split will be minimal compared to the 'fundamental' reasons for its performance,” Dhar said.
This story originally appeared on Fortune.com