Nvidia Splits Stock, Small Investors Hope for a Boost
Nvidia, the chip giant, is conducting a stock split to make its shares more affordable for small investors. Specifically, the AI chip manufacturer is dividing each old share into ten new ones. This reduces the price, at least visually, creating a condition for potential further price increases.
The American AI chip company Nvidia has been reporting record revenues and profits continuously. As a result, the stock has been climbing higher and higher.
In response, the company led by CEO Jen-Sen Huang has initiated a stock split due to the sharp rise in share price, which has exceeded $1,200 (around €1,100). This one-to-ten stock split means that for every share investors held at the end of trading on Thursday (June 6), they receive nine additional shares in their portfolio.
Nvidia Shares Now Cost a Tenth of $1,200
With the stock split, the shares remain affordable for small investors, as reported by tagesschau.de. The price, which was recently around $1,200 per share, now drops to one-tenth of that. On Monday morning at 8:34 AM, Nvidia shares were trading at €114.32 (about $125). This represents an additional increase of about two percent at the start of the week.
After the stock split, the total value of the shares remains the same, but each individual share now costs only one-tenth of its previous price. Dividends and profits are distributed across ten times as many shares. For the dividend of ten cents for an old share, each new share now receives one cent.
Small Investors Bet on a Price Boost for Nvidia Shares
According to Brian Colello, a technology stock strategist at Morningstar, “The stock split is not intended to create economic value but will make the company more accessible to smaller investors.”
Stock splits are often popular among investors because they offer the potential for above-average price gains. According to tagesschau.de, the US index S&P 500 has shown over the past four decades that companies which split their shares typically experience significantly stronger growth compared to the market.
In the twelve months following the announcement of a stock split, these companies achieved an average total return of 25.4 percent. In comparison, the average return of the S&P 500 during these periods was significantly lower.
Nvidia’s Business Thriving
In the full year of 2023, Nvidia’s revenue was nearly $27 billion (around €25 billion). For the current year, company founder Jen-Sen Huang expects high growth rates.
And Nvidia’s CEO can meet his optimistic forecasts: In the presentation of the most recent quarterly figures a few weeks ago, Nvidia once again posted massive increases in revenue and profit.
Quarterly revenue jumped to over $28 billion. Net profit rose by 628 percent in the first quarter of 2024 to $14.88 billion (compared to $2 billion in the same quarter of the previous year). This means that Nvidia retains $0.53 of every dollar in revenue as profit.
The markets reacted enthusiastically to Nvidia’s figures, pushing the stock to new heights. Nvidia is currently the second most valuable company in the world. Recently, Nvidia’s market value surpassed the $3 trillion mark (around €2.75 trillion). This ranks Nvidia second behind Microsoft and, for the first time, ahead of Apple.