NVIDIA (NASDAQ: NVDA) The company reported stellar results for the first quarter, with revenue increasing more than threefold thanks to unprecedented demand for its high-speed computing chips and systems, especially those related to generative artificial intelligence (AI), while adjusted profits increased more than fivefold.
Just as exciting, Nvidia also announced a 10-for-1 stock split. This will be the company's second split in less than three years and will take effect after the market closes on Friday, June 7, 2024. Shareholders will receive nine new shares for each share they own at that time. The stock will begin trading on a split-adjusted basis when the market opens on Monday, June 10, 2024.
Investors need to understand that the stock split does not affect Nvidia's value or investment position. For example, if a shareholder owned one share worth $1,000 before the split, they will own 10 shares worth $100 after the split. Their stake in the company remains unchanged. However, the stock split can still create value for investors.
Specifically, stock splits typically follow a large increase in stock price and rarely happen by chance. Instead, rising stock prices are often indicative of competitively advantaged companies with good growth prospects. Nvidia is a prime example of this. Service Now (NYSE:NOW)The next big thing to potentially split its stock is an AI-focused software company.
Here's what investors need to know.
Nvidia has a strong competitive edge in a fast-growing market
Nvidia's graphics processing units (GPUs) are synonymous with cutting-edge graphics in multimedia and accelerated computing in the data center, especially for artificial intelligence (AI). The company holds more than 95% market share in workstation graphics processors and more than 90% market share in data center GPUs.
moreover, The Wall Street Journal It was recently reported that “NVIDIA's chips power all cutting-edge AI systems, with the company's market share estimated to exceed 80%.” This bodes well for NVIDIA and its shareholders, as AI spending across hardware, software and services is projected to grow 36% annually through 2030, according to Grand View Research.
One of the reasons Nvidia has been so successful is its ecosystem of supporting software. Chief among these products is CUDA, a programming model that allows GPUs to accelerate all kinds of tasks. But Nvidia also offers subscription software and cloud services that support the development and deployment of AI applications across a variety of use cases. The company has furthered its presence in the data center by expanding into networking hardware and central processing units (CPUs), both of which are fast-growing product lines.
In short, NVIDIA provides a full-stack accelerated computing system consisting of hardware, software and services for AI applications and other data center workloads. This strategy and unparalleled technological capabilities have given the company a significant competitive advantage and underpinned its relatively stable and strong financial performance.
The chart below shows Nvidia's revenue and non-GAAP net income growth over the past five quarters.
ServiceNow could be the next artificial intelligence company to split its stock
ServiceNow shares have risen 1,130% over the past decade and 145% over the past five years. S&P 500 (SNPINDEX: ^GSPC) In either case, the stock price increase qualifies the company as a candidate for a stock split, but more importantly, it highlights ServiceNow as a competitively advantaged company with good growth prospects, just like Nvidia.
ServiceNow's platform helps businesses digitize and automate operations across various departments. The company is best known for its IT software products. Specifically, ServiceNow is the market leader in IT service management, IT operations management, and AI for IT operations software. The company also has a strong market presence in adjacent software verticals such as customer service, digital process automation, and low-code development.
ServiceNow has been integrating AI into its products for years, including intelligent document processing, sentiment analysis, and AI-powered search. Not surprisingly, the company was an early adopter of generative AI capabilities in its products: Now Assist is a generative AI assistant that automates IT service, customer service, HR, and developer workflows. ServiceNow believes it is “uniquely positioned to bring the full potential of generative AI to the enterprise.”
ServiceNow reported strong financial results for the first quarter, with revenue up 24% to $2.6 billion and non-GAAP net income up 44% to $3.41 per diluted share. The stock price fell following the report due to weak guidance that was slightly below Wall Street expectations, but the company maintained its medium-term financial goals at its analyst day in May. Specifically, management still expects its addressable market to grow 17% annually to $275 billion by 2026, and the company believes revenue will grow 20% annually in the same period.
With this in mind, Wall Street expects the company's earnings per share to grow 30% annually over the next three to five years. At this consensus estimate, the company's current price-to-earnings multiple of 68.8 times (54.5 times adjusted earnings) seems quite acceptable. In fact, ServiceNow's stock has never been cheaper. Investors should take advantage of this opportunity to buy a small stake.
Should I invest $1,000 in Nvidia right now?
Before you buy Nvidia stock, consider the following:
of Motley Fool Stock Advisor The analyst team Top 10 Stocks Here are the stocks investors should buy now… and Nvidia wasn't among them. The 10 stocks selected have the potential to generate big gains over the next few years.
Things to consider NVIDIA This list was created on April 15, 2005…If you invested $1,000 at the time of recommendation, That comes to $677,040.!*
Stock Advisor With portfolio construction guidance, regular updates from our analysts, and two new stock picks every month, we provide investors with an easy-to-follow blueprint for success. Stock Advisor The service is More than 4 times S&P 500 Recovery Since 2002*.
View 10 stocks »
*Stock Advisor returns as of May 28, 2024
Trevor Jennewine invests in Nvidia. The Motley Fool invests in and recommends Nvidia and ServiceNow. The Motley Fool has a disclosure policy.
Nvidia announced a 10-for-1 stock split in June, and this artificial intelligence (AI) stock could be next. This was first published by The Motley Fool.
