Investor psychology is hugely important in the stock market. That's part of the reason why companies use stock splits to lower their share price, making them more attractive and accessible to smaller investors without changing the overall market value of the company. These events are usually seen as bullish signs and can boost interest in a stock.
Over the last few years, Nvidia (NVDA 3.77%) and Amazon (AMZN 1.34%) have used stock splits multiple times to manage their impressive share price growth. Let's discuss why they could continue to reward investors as they pivot to artificial intelligence (AI) technology.
1. Nvidia
Since its IPO in 1999, Nvidia has been no stranger to stock splits, using the technique a whopping four times to manage its explosive growth. But despite these efforts, shares remain pricey at $435 a pop. They could become even more valuable as the chipmaker fully exploits its massive long-term opportunity in artificial intelligence hardware.
Nvidia specializes in graphics processing units (GPUs) traditionally used to render graphics and images by performing rapid mathematical calculations simultaneously. However, their computational ability has made them useful in other industries like cryptocurrency mining and AI, where they are crucial for training complex applications like ChatGPT. Nvidia's heritage in creating this type of hardware has put it in the right place at the right time to absorb a surge of AI-related demand.
First-quarter revenue doubled year over year to $13.5 billion, driven by a 171% jump in Nvidia's data center segment amid increasing demand for advanced chips like the H100 and A100 to build generative AI models.
Nvidia is working with hundreds of AI start-ups that might need its help. And in August, it announced a partnership with cloud computing provider Alphabet to help clients run AI supercomputers on the Google Cloud platform using Nvidia's technology. Such efforts will help Nvidia maintain a healthy long-term growth rate in this exciting opportunity.
2. Amazon
Like Nvidia, Amazon periodically splits its shares to keep prices manageable for smaller investors. Most recently, the company enacted a whopping 20-for-1 conversion that went into effect in June 2022. And while the e-commerce giant probably won't enjoy the same dizzying expansion as it did in its early years, artificial intelligence could add much-needed growth and diversification to its operations.
AI technology has the potential to boost many aspects of Amazon's business. On the e-commerce side, the tech giant aims to improve the consumer experience. Business Insider reports that it is working on a secretive initiative called Project Nile designed to act as a conversational online salesperson who knows the consumer's tastes and shopping patterns -- possibly boosting conversions. But Amazon's enterprise-focused efforts might be more exciting.
This year, the company rolled out Bedrock, a new feature of Amazon Web Services (AWS) designed to help clients create customized generative AI models with their own data. This platform faces competition from rivals like Microsoft and Google, which are also incorporating AI into their cloud computing platforms. But Amazon can get an edge through its scale as the largest cloud infrastructure provider with a market share of 32%. The platform's size can lead to cost savings and retain clients who prefer to manage all their cloud needs with the same provider.
Amazon's cloud business grew by 12% year over year in the second quarter. However, new AI-related demand could help maintain and possibly accelerate the segment's long-term growth.
Will these companies split their stocks again?
Stock splits are usually done when a company's long-term growth begins to put shares out of reach for smaller investors. Nvidia may be encouraged to use this tactic again because of its eyewatering expansion. On the other hand, Amazon is less likely to split its stock any time soon because it is a more mature and established company. Regardless, both stocks look like excellent buys for investors who want exposure to the infrastructure side of the AI megatrend.
