In recent years, certain GPU makers like Nvidia have seen their share prices soar. But not Intel (INTC +4.97%). Over the past 12 months alone, shares of the struggling chipmaker have crashed by nearly 50%, sending the company's market capitalization below $100 billion for the first time in year.
Intel's management team says it has a plan to reinvigorate growth. But before that happens, investors should prepare for a reverse stock split.
NASDAQ: INTC
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Here's why Intel might execute a reverse stock split
A stock split typically occurs when a company's share price is so high that either investors errantly assume it's "expensive" or limit their holdings because they can't afford to buy another whole share. Reverse stock splits, meanwhile, are often enforced by exchanges that require companies to maintain a share price above a certain threshold. But sometimes, companies opt to execute a reverse stock split for aesthetic reasons.
Right now, artificial intelligence (AI) is one of the hottest markets this century. Powering the AI revolution are chipmakers like Nvidia, whose GPUs are widely regarded as the best available. But as previous chip wars suggest, competitors like Intel may catch up over time. Yet from the narrow perspective of share price, Intel appears to be behind competitors like Nvidia and Advanced Micro Devices. Those competitors have share prices around $100, while Intel's share price has collapsed below the $20 mark.
In reality, the absolute price of a single share lends very little information about how valuable or promising the company is overall. Reverse stock splits are a testament to this reality. By doing a 5-to-1 reverse stock split, for example, Intel could instantly push up its share price to around $100 without anything structural changing about the business.
While it won't shift Intel's prospects directly, don't be surprised to see a reverse stock split from the company this year in an attempt to better place itself in the category of higher-value peers like AMD and Nvidia.
