Money attracts money. It's not surprising, therefore, that some of the world's wealthiest investors own positions in Nvidia (NVDA 1.29%). The company is making money hand over fist thanks to the skyrocketing demand for its artificial intelligence (AI) chips.
Nvidia will conduct a 10-for-1 stock split after the close of trading on Friday, so its shares will begin trading at a much lower price on Monday. Are billionaire investors loading up on Nvidia stock ahead of its impending stock split?
NASDAQ: NVDA
Key Data Points
Don't count on it
The truth is we don't know for sure if billionaires are scooping up shares of Nvidia. The last round of regulatory disclosures -- revealing their holdings as of the end of the first quarter of 2024 -- came a few weeks ago. Unless one or more billionaire investors mention publicly they've bought Nvidia recently, it will probably be another couple of months or so before we find out if they've added to their stakes in the graphics processing unit (GPU) maker.
Based on their activity in Q1, though, you probably shouldn't count on billionaires buying Nvidia ahead of its stock split. Several super-rich investors significantly reduced their stakes in the first three months of the year.
For example, Citadel founder Ken Griffin slashed his hedge fund's position in Nvidia by nearly 68% in Q1. David Tepper sold 44% of Appaloosa's shares of Nvidia last quarter. Stanley Druckenmiler cut his Duquesne Family Office's holdings in Nvidia by 71.5%.
These investors fully understand that Nvidia's stock split in no way changes the fundamentals of its business. Stock splits are the equivalent of reslicing a pizza with eight pieces to make it into 16 pieces. There's still the same amount of pizza with the same toppings -- it's just that the slices are smaller.
In addition, billionaires know that the widespread availability of fractional share trading has changed the impact of stock splits. With many brokerages now allowing their clients to buy and sell fractional shares, most investors who want to add Nvidia to their portfolios have been able to do so regardless of its sky-high share price.
A definite maybe
Still, I think there's a pretty good chance some billionaire investors could be buying Nvidia ahead of its stock split. They could figure that stock splits of widely followed stocks such as Nvidia will still have a psychological impact on retail investors despite the advent of fractional share trading.
Perhaps a bigger consequence of Nvidia's stock split, though, is that the stock could be added to the Dow Jones Industrial Average in the near future. The main factor preventing Nvidia from being added to the Dow was its high share price. It wouldn't be surprising if a few billionaires increased their hedge funds' stakes in Nvidia in anticipation of exchange-traded funds (ETFs) and mutual funds that track the Dow buying Nvidia if it's included in the index.
I suspect ultra-rich investors could also be buying Nvidia right now for reasons unrelated to the upcoming stock split. The company announced spectacular Q1 results two weeks ago. That quarterly update could have spurred some billionaires who had reduced their positions in the stock to resume buying.
In particular, Nvidia's optimism about the demand for its forthcoming Blackwell platform could have lured wealthy investors back into the fold. Blackwell will be the company's most powerful architecture for AI chips yet.
Should you load up on Nvidia stock?
Does it matter what billionaire investors are doing concerning Nvidia? Not really. The more important question is: Should you load up on Nvidia stock? The answer to this question depends on your investing style.
Income investors will almost certainly want to look elsewhere. Although Nvidia pays a dividend, its forward yield is a minuscule 0.0035%.
Risk-averse investors could also find other stocks that are more to their liking. Nvidia is priced at a premium based on some valuation metrics because of its tremendous growth prospects. However, much of that expected growth is already baked into the share price. If it doesn't materialize, the stock could plunge.
Nvidia should be a great pick for growth investors willing to take on some risk, though. Maybe the looming stock split will provide a big catalyst; maybe it won't. Either way, Nvidia's continual innovation should keep it at the forefront of the AI chip market.
