Investors love stock splits for a couple of different reasons.
First, these operations make it easier for a wider range of investors to get in on a previously high-priced stock because they lower the per-share price. Second, the decision to split could be seen as a sign of confidence from a company -- it suggests the company is optimistic about the future and believes the shares can take off once again from the new, lower price. That's why investors always are on the lookout for the next stock split, and when it involves an already high-profile company, it could create a lot of excitement.
Now, let's consider one of the highest-profile companies today, and that's artificial intelligence (AI) chip giant Nvidia (NVDA 2.94%). This market giant isn't new to stock splits. In fact, Nvidia just completed its most recent stock split in June after the shares soared past $900 earlier in the year -- and then surged past $1,000 after Nvidia's announcement of the split.
Is it possible that Nvidia, so soon after that operation, could decide to launch another stock split? Let's find out.
Image source: Getty Images.
Record earnings driven by AI demand
First, a quick summary of Nvidia's path so far. The company is the leader in the AI chip market, and this has helped earnings and share performance to soar in recent years. Nvidia's earnings have climbed in the triple digits in most recent quarters on a year-over-year basis, and they've reached record levels into the billions of dollars. The company's revenue reached more than $35 billion in the latest quarter, driven by demand from AI customers.
Nvidia sells graphics processing units (GPUs) as well as related products and services to some of the world's biggest tech companies, from Microsoft to Alphabet. The chip powerhouse has stayed ahead of rivals thanks to its focus on innovation -- pledging to update its GPUs annually -- and this should help it to maintain that position. In fact, the company right now is ramping up production of its much-awaited new platform -- the Blackwell architecture and chip -- and demand for it has surpassed supply.
Nvidia's stock has climbed about 14% since its June stock split, but it's important to remember that the stock split itself isn't the reason for this performance. Investors won't buy a stock just because it's split, since the operation doesn't change anything fundamental about the company. Nvidia's recent gains, instead, are a sign that investors are optimistic about the Blackwell launch and Nvidia's future in general.
Nvidia's 10-for-1 stock split
Now, let's talk about stock splits and consider whether a stock split is likely. As mentioned, these operations lower the price of a stock -- and they do this through the issuance of more shares to current holders. The ratio of the split will determine the final price. For example, Nvidia's 10-for-1 stock split this year brought the stock price down to about $120 from $1,200.
Nvidia has completed back-to-back stock splits twice in the past. It executed stock splits in June 2000, and then in September 2001. And it launched a split in April 2006 and then another in September 2007. So, it's possible to split a stock more than once within a short time span, and Nvidia has shown that it's fine with doing that.
But, looking ahead to the coming year, at this point, I wouldn't predict a stock split for Nvidia. At the current price of $138, the stock isn't out of reach for investors. The level of $1,000 a share represents a psychological barrier for some investors -- they may view the stock as expensive even if it isn't from a valuation standpoint. But Nvidia today clearly is far from that level.
NASDAQ: NVDA
Key Data Points
Nvidia's past stock splits
Of course, in the past, Nvidia split its stock when it traded for a much lower price than it does today, but Nvidia was at a completely different point in its story -- with much lower revenue -- back then. During those times, it was a good decision to launch a split and decrease the per-share price. Nvidia depended on serving video game customers, and annual revenue totaled around $800 million. Last year, with AI customers dominating sales, Nvidia's revenue topped $60 billion.
So, I think Nvidia is open to splits when they're needed. The company earlier this year, when announcing its split, said it aimed to make the stock more accessible to employees and investors. But I don't think such an operation is needed today, with Nvidia's shares trading around their current level -- and that means this tech giant that's wowed the market with its earnings and share price performance may not be next on the stock-split list.
