Shares of tech powerhouse Nvidia began trading Monday on a 10-to-1 split, a move that will make the stock more easily tradable by retail investors.
The value of Nvidia, a U.S. computer and software company, has exploded over the past year as it became one of the most sought-after and headline-grabbing equities on Wall Street because of soaring demand for its chips.
The split caused the price of a Nvidia share to be a tenth of what it was trading at last week and is a sign of confidence from CEO Jensen Huang, who has quickly become a celebrity in the tech world, that the company can continue expanding as the market increasingly seeks out chips for high-level tech and artificial intelligence.
A stock split cuts the cost based on the ratio it is split but doesn’t change the value of the company outright. So, in this case, a 10-to-1 split could reduce the price of Nvidia from about $1,200 on Friday to just $120 on Monday. If an investor owned five shares of Nvidia last week, those shares are each split 10 ways, so that same investor now has 50 shares of the company stock at the same overall value.
The fundamentals are the same, so the overall market capitalization is still near $3 trillion. As of Monday morning, the price of a Nvidia share was up slightly following the split.
“This is really just splitting the pizza pie into more slices — it doesn’t inherently change the size of the pie itself,” Bankrate’s James Royal told the Washington Examiner.
It isn’t super common for companies to conduct big forward splits like this, according to Royal, who pointed out that there have been some major ones over the past few years in the high-profile tech stocks. For instance, Apple has several stock splits over the past decade or so because it has proven so successful.
“It’s mind-blowing that a stock so large has managed to explode, skyrocket so fast — this is not something that usually happens to a mega-cap stock,” Royal said about Nvidia’s growth. “The speed with which it has exploded is truly mind-bending — and especially for a company of this size.”
For one, conducting such a big stock split shows that the company has confidence that it will continue to expand in the coming months and year, a good sign for investors, which might be part of why the stock was up on Monday morning following the fragmentation.
“It acts as a signaling effect to investors that management has confidence in the stock and that the stock price will be able to maintain or be maintained in the future,” Royal said. “Stocks that conduct forward splits tend to outperform the S&P 500 over the subsequent year.”
For context, Nvidia’s rapid growth has been historic. In the past year alone, owners of Nvidia’s stock have seen whopping 210% returns on investments. That dwarfs the overall Nasdaq, which has increased nearly 28% during the same period. Competitor IBM has risen just 25% over the year.
Longer-run investors in Nvidia have seen the cash cow explode even more. If an investor put $25,000 into the tech company five years ago, that would have grown to about $850,000 today, a whopping 3,288% return on investment.
The split also makes it easier for more retail investors to get skin in the game. If someone wanted to buy a single share before the split, he or she would have had to cough up more than $1,000 for the investment. Some smaller-scale investors who want to buy a share can now get exposure for a tenth of that.
Still, that dynamic isn’t as big of a deal these days as many online brokers offer the ability to trade fractional shares, allowing people to buy a smaller portion of a share without purchasing a whole piece of Nvidia or other companies.
Nvidia predicts continued growth ahead. AI has become a major tool and many see it as the next frontier in the technology sector. Companies have been competing to make strides in the AI space and powerful chips, such as the ones Nvidia produces, are needed in that process. As AI grows, so too will the need for fast and efficient processing.
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“The next industrial revolution has begun — companies and countries are partnering with Nvidia to shift the trillion-dollar traditional data centers to accelerated computing and build a new type of data center, AI factories, to produce a new commodity: artificial intelligence,” Huang said in May when the company announced its first-quarter earnings.
Nvidia reported record $26 billion revenue in the first quarter, up 18% from the preceding quarter and 262% from a year ago. Investors are hoping that red-hot growth will continue into 2024 after the stock split.