Nvidia (NVDA) joins its Big Tech peers, becoming the fourth Magnificent 7 stock to split since 2022.
The chip giant's 10-for-1 stock split, which will begin trading on Monday, comes after significant price growth, with shares up 212% in the past year. This massive rise propelled Nvidia into the $3 trillion club, becoming the third American company ever to reach the milestone.
“A stock split is a vote of confidence from management that the stock will retain its value, as the stock (price) typically rises,” said Howard Silverblatt, chief analyst at Standard & Poor's Dow Jones Indices.
Adam Kunz, chief investment officer at Winthrop Capital, expects the split to boost retail investor interest, but warns that an influx of retail traders could lead to volatility in the stock.
“They can be a bit more quick and emotional in their buy and sell decisions, which can lead to increased volatility when it starts to dampen institutional buyers,” Kunz told Yahoo Finance.
Evercore ISI's Julien Emanuel sees the rising volatility as an opportunity to buy Nvidia — a stock he considers a “generational opportunity” and the “preeminent” tech stock of this era.
“While high-profile splits have often fueled stock volatility — speculative buying and profit-taking around the event — the thinning of trees within the forest after a split stimulates a buying opportunity for the patient investor,” Emanuel wrote.
Historically, stock splits are typically bullish for the companies that enact them, with average returns after one year of 25% versus about 12% for the broad market, according to an analysis by Bank of America.
Nvidia's soaring gains pushed the broader market to record highs. Its rise represents about a third of the S&P 500's returns since the beginning of the year, and more than a quarter of the S&P 500's returns in May, according to Silverblatt.
Wall Street has become more bullish on the stock since its May 22 earnings report. Last week, Bank of America's Vivek Arya raised his price target to a Street high of $1,500.
“We're at the beginning of what I think will be a decade-long shift to accelerated computing… We think spending could be $250 billion to $500 billion a year, and Nvidia is leading the charge,” Arya told Yahoo Finance.
Nvidia's stock split signals not only management's confidence in the chip giant, but also enthusiasm and optimism about the broader growth potential of the AI industry.
As Lam Research (LRCX) CFO Doug Bettinger explained to me at Bank of America's Global Technology Conference last week, we're still “very early” in the AI investment cycle.
This next round of growth – or the second wave of AI – is expected to take hold as companies begin to integrate AI into their corporate planning and spending.
“More and more companies are adopting hybrid cloud architectures, focusing on building modern applications, and beginning their journey to enterprise AI,” Rajeev Ramaswamy, CEO of Nutanix (NTNX), told me.
For investors looking to add to their portfolios, Arya likes Broadcom (AVGO), Marvell Technology (MRVL), Micron (MU), and Arm (ARM) as winners in the ongoing AI wave. In a note to clients last month, Arya wrote that he sees increasing demands in compute, networking and memory as a “multi-year growth driver” for the group.
Sean Smith He is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSSmith. Advice on deals, mergers, activist positions, or anything else? Email seanasmith@yahooinc.com.
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