Breaking Down Nvidia’s Stock Splits and What’s Next for the Graphics Giant

A stock split is a corporate action taken by a publicly-traded company to increase the number of outstanding shares while proportionately decreasing the share price. It does not change the company’s market capitalization or the value of investors’ holdings.

During a stock split, a company distributes additional shares to current shareholders based on a predetermined ratio. For example, in a 2-for-1 split, an investor holding one share would receive an additional share, effectively doubling their number of shares while halving the price per share.

The mechanics behind a stock split are straightforward. If a company has 1 million outstanding shares trading at $100 each, with a market cap of $100 million, a 2-for-1 split would double the shares to 2 million while reducing the price to $50 per share. Despite the increased share count, the company’s overall value remains $100 million.

Stock splits are often seen as a positive signal, as they make shares more accessible to a wider range of investors by lowering the per-share cost. Companies may initiate a split if their stock price has risen significantly, aiming to improve liquidity and trading volume.

Why Do Companies Split Stocks?

Companies typically split their stocks for a few key reasons:

Increase Affordability and Accessibility

A primary driver for stock splits is to make the share price more affordable and accessible to a wider range of investors. As a company’s stock price climbs higher, it can become too expensive for many retail investors. By splitting the stock, the company lowers the per-share cost, enabling more investors to purchase shares. This increased affordability can boost liquidity and trading volume.

Signal Positive Outlook

Stock splits are often viewed as a positive sign by the market, indicating that a company’s management team is confident about future growth prospects. A decision to split the stock suggests that leadership believes the share price will continue rising over time. This positive signal can generate increased investor interest and drive further share price appreciation.

Facilitate Employee Ownership

Companies may split their stocks to make shares more attainable for employees participating in equity compensation plans like employee stock purchase plans (ESPPs) or stock option grants. Lower share prices allow employees at various income levels to more easily buy company stock, fostering a stronger sense of ownership and alignment with shareholder interests.

Reset Optimal Trading Range

There is typically an ideal trading price range for a company’s shares. If the stock price becomes too high, it can limit trading activity and liquidity. A split can reset the share price to a more optimal trading range, maintaining healthy buy and sell volumes.

Nvidia’s Stock Split History

Nvidia has undergone five stock splits since going public in 1999. These splits have helped make the company’s shares more accessible to investors while also reflecting its impressive growth trajectory over the past two decades.

The first stock split for Nvidia occurred in September 2001, when the company executed a 2-for-1 split. At the time, the stock was trading around $100 per share. After the split, share prices were halved to approximately $50 each, while the total number of outstanding shares doubled.

Just over a year later, in April 2003, Nvidia’s stock split happened on a 3-for-2 basis. This split helped further increase the stock’s affordability and liquidity as shares were trading near $70 pre-split.

As the company continued expanding, it enacted two more splits in the late 2000s – a 3-for-2 split in April 2006 when shares hovered around $35, and another 2-for-1 split in September 2007 with the stock price around $40.

The most recent Nvidia’s stock split came in July 2021, when the company implemented a 4-for-1 forward split. This split helped make the high-priced shares more accessible as the stock traded above $700 prior to the split event.

Throughout these splits, Nvidia’s share price and outstanding shares have multiplied substantially, while the overall market capitalization has skyrocketed from just over $3 billion after its IPO to around $600 billion currently.

Impact of Past Splits

Nvidia has executed five stock splits throughout its history, each impacting the company’s share price, market capitalization, trading volume, and investor sentiment in different ways.

Effects on Share Price

By increasing the number of outstanding shares and reducing the trading price proportionally, stock splits make a company’s shares more affordable and accessible to a broader range of investors. Nvidia’s past splits have temporarily lowered the per-share price, making it easier for retail investors to buy into the stock.

Impact on Market Capitalization

While a stock split does not change a company’s overall market value or the proportional ownership for existing shareholders, it can influence market capitalization indirectly. Nvidia’s splits have often been followed by increased trading activity and investor interest, contributing to a rise in the company’s total market cap over time.

Trading Volume and Liquidity

Stock splits tend to boost trading volume, at least temporarily, as the lower share price attracts more buyers and sellers. Nvidia has consistently experienced a surge in trading activity immediately following its split announcements and execution dates, improving the stock’s liquidity and reducing bid-ask spreads.

Investor Sentiment and Psychology

Beyond the technical aspects, stock splits can positively impact investor sentiment and psychology. Nvidia’s splits have been perceived as a vote of confidence from management, signaling their belief in the company’s future growth prospects. This positive sentiment has often translated into increased demand for the stock and higher valuations.

Recent Stock Growth

Nvidia’s stock has been on an impressive bull run over the past few years, fueled by strong demand for its cutting-edge graphics processing units (GPUs) across various industries. The company’s shares have skyrocketed, driven by its leadership in artificial intelligence (AI) and high-performance computing (HPC) applications.

In 2020, Nvidia’s stock price surged by an astonishing 122%, propelled by the growing adoption of its GPUs in data centers, cloud computing, and gaming. The COVID-19 pandemic further accelerated the demand for Nvidia’s products as remote work and online entertainment spiked.

The momentum continued in 2021, with Nvidia’s stock climbing an additional 125%. The company’s acquisition of Arm Holdings for $40 billion, a move to expand its reach into the lucrative mobile computing market, added to investor enthusiasm.

As of mid-2023, Nvidia’s stock has more than doubled from its 2021 levels, reaching new all-time highs. The company’s market capitalization now exceeds $1 trillion, solidifying its position as a tech giant and a powerhouse in the semiconductor industry.

Nvidia’s impressive financial performance has been driven by strong revenue growth across its core businesses, including gaming, data center, and professional visualization. The company’s cutting-edge products, such as the RTX 30 series GPUs and the Ampere and Hopper architecture for data centers, have cemented its technological leadership and fueled investor confidence.

With the rapid advancement of AI, cloud computing, and the metaverse, Nvidia’s GPUs are expected to play a crucial role in powering these emerging technologies. The company’s focus on innovation and its ability to capitalize on these growth opportunities have positioned it as a prime beneficiary of the ongoing digital transformation.

Speculation of 2024 Split

As Nvidia’s stock price continues its upward trajectory, surpassing the $300 mark in early 2023, speculation is mounting that the company may be due for another stock split in the near future. Many analysts and investors are anticipating a potential 4-for-1 or 3-for-1 split could occur as soon as 2024.

Several prominent Wall Street analysts have cited Nvidia’s soaring valuation and share price as key factors pointing toward an imminent split. With the stock trading at over $325 as of March 2023, a split could bring the price back down to a more accessible level for retail investors looking to build positions.

Investor sentiment also appears to be bullish on the prospects of a 2024 Nvidia split. Online investor forums are abuzz with discussions debating potential split ratios and timing. The prevailing belief is that Nvidia will aim to keep its post-split share price around $100 to maintain strong retail investor interest and liquidity.

Furthermore, some are speculating that Nvidia may use the milestone of reaching a $1 trillion market capitalization as the catalyst to announce a stock split. With a current valuation of over $800 billion, the symbolic $1 trillion mark could provide the perfect opportunity for Nvidia to split its shares while riding a wave of positive market sentiment.

Pros and Cons of Splitting

Advantages for Companies:

  • Stock splits can make shares more affordable for retail investors, increasing demand and liquidity.
  • Lower share prices can improve a company’s perceived affordability and attract a wider investor base.
  • Stock splits are often viewed as a bullish signal that the company’s management is confident in future growth.

Disadvantages for Companies:

  • There are costs associated with executing a stock split, including legal fees and administrative expenses.
  • Stock splits don’t fundamentally change a company’s market capitalization or financial position.
  • Some investors may perceive a stock split as a tactic to artificially inflate the share price in the short term.

Advantages for Investors:

  • Stock splits can make it easier for investors to accumulate more shares at a lower price point.
  • Lower share prices can improve trading liquidity, making it simpler to enter and exit positions.
  • Stock splits are often seen as a positive sign of a company’s growth potential and management’s confidence.

Disadvantages for Investors:

  • Stock splits don’t change the fundamental value of an investor’s holdings or the company’s overall worth.
  • Investors may be tempted to buy more shares after a split, potentially overextending their positions.
  • In some cases, stock splits can be interpreted as a sign that a company’s growth is slowing or stagnating.

Predictions on Next Split

While Nvidia has not officially announced plans for another stock split, many analysts and investors anticipate the company will split its shares again in 2024 or 2025. The chipmaker’s stock price has skyrocketed over 200% in the past two years, closing at over $280 per share as of early 2023.

A 4-for-1 or 3-for-1 split ratio seems most likely based on Nvidia’s historical splits and the current elevated share price. This would bring the stock back down into the $70-$100 range, making it more accessible to retail investors. However, some speculate an aggressive 5-for-1 or even 10-for-1 split could be in the cards given Nvidia’s stellar performance.

Timing a split in 2024 would align with Nvidia’s typical 2-3 year cadence between splits during its growth phases. With the AI boom driving demand for its chips and new product launches on the horizon, the stars seem aligned for another split in the next 12-18 months. However, market conditions and Nvidia’s financials will ultimately dictate if and when the board pulls the trigger.

Recommendations for Investors

For current Nvidia shareholders, holding onto your existing shares is likely a wise move given the company’s impressive growth trajectory and market dominance in key areas like gaming GPUs and AI hardware. However, with speculation mounting around a potential stock split in 2024, shareholders may want to consider adding modestly to their positions ahead of any split, as post-split shares tend to become more accessible to retail investors.

For prospective investors considering buying Nvidia stock, the current share price over $400 could present a high barrier to entry. A stock split would reduce the per-share cost, making it easier to build an initial position. With Nvidia’s strong fundamentals, dip-buying opportunities around broader market volatility may be an attractive entry point ahead of a potential split.

Regardless of split speculation, Nvidia remains a compelling long-term investment opportunity given their leadership in cutting-edge technologies like AI, data centers, and autonomous vehicles. However, investors should carefully evaluate their risk tolerance, as the stock’s premium valuation means it may experience turbulence amid any broader market downturns. Prudent investors may opt for dollar-cost averaging into a position over time rather than a lump-sum investment.

Nvidia Company Overview

Nvidia is a multinational technology company that has become a dominant force in the world of computer graphics and artificial intelligence. Founded in 1993, the company initially made its mark by developing groundbreaking graphics processing units (GPUs) that revolutionized the gaming industry and enabled more immersive and visually stunning experiences.

Over the years, Nvidia has expanded its product portfolio beyond GPUs for gaming, venturing into areas such as data centers, autonomous vehicles, and professional visualization. Its high-performance computing solutions are now used in a wide range of industries, including scientific research, deep learning, and cloud computing.

One of Nvidia’s flagship products is the GeForce line of GPUs, which caters to the gaming community and provides cutting-edge performance for the latest games and virtual reality experiences. Additionally, the company’s Quadro and Tesla product lines are designed for professional visualization and high-performance computing applications, respectively.

Nvidia has also made significant strides in the field of artificial intelligence (AI) and machine learning. Its CUDA parallel computing platform and deep learning software have become industry standards, enabling researchers and developers to harness the power of GPUs for accelerating AI workloads.

In recent years, Nvidia has expanded its reach into the automotive industry, developing advanced driver assistance systems (ADAS) and autonomous vehicle platforms. Its DRIVE AGX platform is designed to provide the computational power and intelligence required for self-driving cars, leveraging the company’s expertise in GPU technology and AI.

With a strong focus on innovation and a commitment to pushing the boundaries of computing power, Nvidia has solidified its position as a market leader in various industries. The company’s continuous investment in research and development, combined with its diverse product portfolio, has enabled it to stay ahead of the curve and maintain a competitive edge in the rapidly evolving technology landscape.

Conclusion

In conclusion, Nvidia’s impressive stock performance and continued business growth have fueled speculation that the company may pursue another stock split in the near future, potentially in 2024. The graphics chip maker has a well-established history of splitting its shares, having executed splits on five previous occasions to make its stock more accessible to retail investors.

Previous Nvidia stock splits have generally been met with positive investor sentiment, leading to increased liquidity and trading volume. While a split does not inherently change a company’s underlying value, it can make shares more affordable for smaller investors and signal management’s confidence in the company’s future prospects.

Based on Nvidia’s recent meteoric stock rise, reaching all-time highs above $600 per share, many analysts and investors anticipate that the company will announce another split in the coming year or two. A 4-for-1 or 3-for-1 split ratio appears most likely, which would bring the share price back into a more accessible range below $200.

For current Nvidia shareholders, a future stock split could provide an opportunity to increase their position at a lower per-share cost or simply hold onto their existing shares, which would multiply in quantity. Prospective investors may want to consider entering a position before any announced split, as the stock tends to rally in the lead-up to the split execution date.

Ultimately, while nothing is certain, the stars seem aligned for Nvidia to continue rewarding its shareholders with another stock split in the near future, capitalizing on the company’s incredible growth trajectory and bullish long-term outlook in the AI and data center markets.

FAQs

How does a stock split impact my investment?

A stock split does not fundamentally change the overall value of your investment in a company. While the number of shares you own increases after a split, the total dollar value remains the same because the stock price is adjusted proportionately lower. For example, if you own 100 shares at $100 per share ($10,000 total) and the company does a 2-for-1 split, you would then own 200 shares at $50 per share (still $10,000 total).

Does a stock split make the stock more or less valuable?

A stock split itself does not make a stock more or less valuable. The market capitalization of the company, which is the total value of all its outstanding shares, remains unchanged after a split. However, some investors perceive lower-priced shares as more affordable and attractive, potentially increasing demand and driving up the stock price over time.

Can I buy fractional shares if a stock split makes the price too high?

Yes, many brokers now offer the ability to purchase fractional shares, which are partial shares of a company’s stock. This can be helpful if a stock’s price becomes too high after a split for an investor to afford a full share. Fractional shares allow investors to buy a portion of a share, making it more accessible and enabling them to take advantage of potential price appreciation.