Stock-split fever is running rampant.
Walmart infected some investors earlier this year with its first stock split in over 20 years, conducted in February. Chipotle Mexican Grill got temperatures soaring with its 50-for-1 stock split announced in March.
But the biggest news of all came from Nvidia (NVDA 1.16%): The tech giant announced a 10-for-1 stock split in its first-quarter update on May 22. This split will be effective June 7.
What should investors do with the clock ticking? Forget Nvidia's upcoming stock split. Here's a much better reason to buy the stock.
NASDAQ: NVDA
Key Data Points
Blackwell is coming
In March, Nvidia announced its most advanced AI product so far -- Blackwell. This isn't a new chip; it's a new architecture for GPUs. Nvidia says that it's "the engine of the new industrial revolution" that will "power a new era of computing."
Blackwell supports large language models (LLMs) with 1 trillion parameters. To put that into perspective, GPT-4 reportedly uses eight LLMs with 220 billion parameters each. Nvidia's new platform enables training of generative AI models up to four times faster and inference of up to 30 times faster than its H100 GPU. Blackwell also has a total cost of ownership and energy consumption that's up to 25 times less than the company's Hopper GPU architecture.
All the top-tier cloud service providers will use Blackwell: Amazon Web Services, Alphabet's Google Cloud, Microsoft Azure, and Oracle Cloud. So will Facebook parent Meta Platforms, ChatGPT creator OpenAI, Tesla, and Elon Musk's new AI company, xAI.
Nvidia CFO Colette Kress said in the company's Q1 earnings call that the demand for Blackwell is "well ahead of supply." CEO Jensen Huang revealed that production shipments will begin in the second quarter of 2024 and accelerate in Q3. He stated, "We will see a lot of Blackwell revenue this year."
The bigger implication
I think there's a bigger implication with the forthcoming launch of Blackwell that shouldn't be overlooked: Nvidia is proving that it can continue to out-innovate everyone.
Just when it seemed that Nvidia might have some competition in the GPU market, the company raised the bar. Rivals such as Advanced Micro Devices introduced new AI chips that might give Nvidia's H100 GPUs a run for their money, but they don't come close to stacking up against the Blackwell platform.
TD Cowen analyst Matt Ramsay hit the nail on the head with his comments in Nvidia's Q1 call. Ramsay said to Huang, "Jensen, I've been in the data center industry my whole career. I've never seen the velocity that you guys are introducing new platforms at the same combination of the performance jumps that you're getting."
It seems that no other chipmaker or wannabe chipmaker on the planet can keep up with Nvidia. Blackwell is proof. The new architecture isn't the end of the story, though. In Huang's response to Ramsay, he revealed, "[W]e have other Blackwells coming."
What about the stock split?
Many investors might still have the Nvidia variant of stock-split fever. I'll admit that the company's upcoming stock split might entice some retail investors to buy shares at a lower price. However, any boost from the stock split will almost certainly be only temporary. Stock splits change nothing about a company's underlying business or prospects.
Nvidia's underlying business and prospects are impressive without a stock split. I've had some concerns about the stock's valuation in the past. The level of growth the company is delivering and the pace of its innovation, though, go a long way toward alleviating those concerns.
I couldn't care less about Nvidia's 10-for-1 stock split. But the feverish excitement about this high-flying stock is warranted.
