As Nvidia (NVDA) plans to implement a 10-for-1 stock split after the market closes on Friday, Bespoke Investment Group co-founder Paul Hickey appears on Asking for a Trend to discuss what the move means for the chip giant.
“I don't think the stock split is a big deal,” said Hickey, who called it a psychological ploy to allow retail investors to buy more shares at a more attractive price. He said Nvidia's recent run is “like nothing we've ever seen before,” adding that the company has added $2 trillion to its market cap in a year.
As the AI race heats up and companies like Google (GOOG, GOOGL) shift their focus to AI, Nvidia continues to gain momentum. “If you want to build AI today, you have to use Nvidia chips,” Hickey said, explaining that Nvidia currently appears to have an “insurmountable lead.” But he expects the competition to intensify over time.
For more expert insights and the latest market trends, click here to watch the full episode.
This post was written by Melanie Leal
Video Transcript
Nvidia is paying a dividend of $10 per share.
However, after the close of trading today, the stock closed at around $1,209.
As a result, shares will begin trading on a split-adjusted basis when markets reopen on Monday. Find out more about what this means for investors and AI trading in general, or listen to Paul Hickey, co-founder of Bespoke Investment Group.
Hi Paul, good to meet you.
you too.
How are you?
me too.
That's good.
thank you.
The NVIDIA story has been fun to watch, with stock splits breaking news along with earnings.
Well, I know you've written a lot, thought a lot, and done a lot of research on the trading patterns that you've seen with NVIDIA.
So, taking stock splits into account, what is your take on the overall phenomenon?
You know, I don't think stock splits are that big a deal.
So, yes, retail investors can buy shares.
Well, that's tough. It's a lot easier to buy a $100 stock than it is to buy a $1000 stock.
Brokerage firms have fractional shares, but it's never a good idea to say, “I bought 1/10 of a share of NVIDIA stock.”
So, in that respect, psychologically, I think it's a good thing.
Um, but this run that we saw is totally different than anything we've seen before.
You know, if you look back at all these comparisons, if you think about NVIDIA over the last year, their market cap went from $1 trillion to $2 trillion in nine months, and then went from $2 trillion to $3 trillion in about three months.
That means its market capitalization has increased by $2 trillion in just one year — more than the entire market value of Amazon.
So, that kind of driving is just madness.
That's a 22,000% increase over the past decade.
And now let's look at all the other megacaps today across the decade of their history.
Microsoft is the next closest, up about 13,000% in the '90s.
So this kind of behavior is very different from what we're seeing in the current market, in the mega-caps today.
Well, that reminds me of Cisco in the late '90s, where they were in a very similar position with the internet as NVIDIA is today with AI.
So, that's something to keep in mind.
And, you know, when you made the comparison of Cisco after AOL's IP O in the early '90s, which was a key moment in the early days of the Internet.
Compare this to NVIDIA's track record since 2016, when Google v. Sundar Pachay stated that “NVIDIA has become an AI-first company.”
That was a defining moment in AI.
And then compare those runs over those periods.
So far, it's pretty much the same.
here.
So my question about this is, Paul, what was the PE at Cisco when they did that run?
So, to me, one of the most interesting things about NVIDIA is that even though the stock price has skyrocketed because revenue has kept up with it, the price-to-earnings ratio hasn't gone crazy high.
Oh no, you, you, you are totally right.
So I wouldn't say NVIDIA is definitely going to collapse from here.
But what this stock has managed to do is maintain its pace of growth, the pace of growth going forward.
The number gets so high that it takes up the entire market capitalization of other companies in the market.
So I think this is an unsustainable pace.
But it's important to remember that in the '90s Cisco had a monopoly on routers, and there were other networking companies too.
But if you want to actually build a network or Internet infrastructure, these days you have to use Cisco products.
If you want to build AI, you need to use NVIDIA chips.
And both Cisco then, and NVIDIA now, seem to have an insurmountable lead.
But at some point, as you know, competitors enter the market and success breeds more competition.
And I think over time we'll see it again.
No matter how you look at it, I don't think NVIDIA is a stock that's going to crash anytime soon.
But right now, there's a lot of movement and positive fundamentals priced into the stock.
