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A financier gleams as he peruses a screen on his computer in an office setup.
A financier gleams as he peruses a screen on his computer in an office setup.

Observing Stock Splits: Could Nvidia Be Next?

Stock splits are a favorite among investors for a couple of reasons. First, they make high-priced stocks more accessible to a wider range of investors by lowering the per-share price. Second, a decision to split can be seen as a sign of confidence from the company, suggesting they are optimistic about the future and believe the shares can take off again from the new, lower price. With that in mind, let's discuss artificial intelligence (AI) heavyweight, Nvidia (NVDA -1.97%).

Nvidia isn't new to stock splits. In fact, it recently completed its most recent split in June, after the shares surged past $900 earlier in the year and reached over $1,000 following the announcement. But is it possible that Nvidia could decide to launch another split so soon?

Nvidia's earnings have been on a high roll in recent years, thanks to its dominance in the AI chip market. The company's Q4 earnings climbed in the triple digits on a year-over-year basis, reaching record levels in the billions of dollars. Nvidia's revenue exceeded $35 billion in the latest quarter, driven by demand from AI customers. The chip powerhouse sells GPUs to tech giants like Microsoft and Alphabet and uses its focus on innovation to stay ahead of rivals.

Nvidia's stock has rallied about 14% since the June split, but it's essential to remember that the operation itself doesn't change the company's fundamental value. Instead, the stock's growth is a sign of investor optimism about the future, fueled by the upcoming Blackwell launch.

So, could Nvidia split its stock again? Nvidia has completed back-to-back splits twice in the past: in 2000 and 2001, and then in 2006 and 2007. That being said, looking at the current market conditions and the company's performance, it's unlikely that a new split will happen in the near future. With the stock trading at around $138, it's not necessarily out of reach for investors, and the level of $1,000 a share may no longer seem so intimidating.

In the past, Nvidia split its stock when it was trading at much lower prices. At those times, the split made sense because the company was focusing on video game customers and had lower revenue. But with AI customers now playing a prominent role in Nvidia's business, a split isn't needed to make the stock more accessible. In 2022, when announcing the split, the company stated that its goal was to make the stock more accessible to employees and investors. And, based on the current conditions, it seems like Nvidia is well-positioned to maintain investor interest independently.

To conclude, while Nvidia has a history of making stock splits to make the stock more accessible and boost investor interest, it doesn't appear to be in need of one in the current market conditions. The company's earnings have been strong, and the growth prospects for its AI market are promising. Today, Nvidia stands as a prominent S&P 500 stock, influencing investor sentiment and market trends, so it's likely that the company will focus on strengthening its market position rather than pursuing another split.

Furthermore, the company's strong financial performance and investment in AI technology suggest that it may be allocating its resources towards strategic growth rather than reducing share prices through a stock split. In terms of finance, Nvidia's cash reserves have increased significantly, providing it with ample capital for potential acquisitions or R&D investments. Therefore, it seems that investing in Nvidia's shares could yield significant returns, given the promising future of AI and the company's dominant position in the market.

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