Nvidia (NVDA) will become the fourth Magnificent Seven stock to split after 2022, joining other mega-cap tech companies.
The chip giant's 1-for-10 stock split begins trading on Monday, but before then, its shares have risen 212% over the past year, continuing a massive rally that has helped Nvidia join the $3 trillion market cap club, making it just the third U.S. company to reach the milestone.
“A stock split is an expression of management's confidence that the stock price will maintain its value even if the stock price declines. [price] “Typically, you would see an increase,” said Howard Silverblatt, senior analyst at S&P Dow Jones Indices.
Adam Coons, chief investment officer at Winthrop Capital, expects the stock split to attract more retail interest but cautions that an influx of retail investors could cause volatility in the stock price.
“They tend to make buying and selling decisions a little quickly and emotionally, so we could see more volatility as institutional buyers start to dilute,” Kuhn told Yahoo Finance.
Julian Emanuel of Evercore ISI sees the increased volatility as an opportunity to buy Nvidia, which he sees as a “generational opportunity” and the “flagship” tech stock of our time.
“High-profile stock splits often increase stock price volatility due to speculative buying and profit-taking, but the thinning of the trees in the forest after the split can create buying opportunities for patient investors,” Emanuel wrote.
Historically, stock splits have typically been bullish for the companies that implement them, with average one-year returns of 25%, compared with roughly 12% for the overall market, according to a Bank of America analysis.
Nvidia's surge has helped lift the broader market to record highs. The company's gains have accounted for about a third of the S&P 500's return this year and more than a quarter of the index's return in May, according to Silverblatt.
Wall Street has grown more bullish on the stock since its earnings report on May 22. Last week, Bank of America's Vivek Arya raised his price target to $1,500, the highest price on the Street.
“We're at the beginning of a transformation to accelerated computing that will take a decade. We think spending will be between $250 billion and $500 billion per year, with Nvidia leading the way,” Arya told Yahoo Finance.
Nvidia's stock split not only demonstrates management's confidence in the semiconductor giant, but also its enthusiasm and optimism about the growth potential of the AI industry as a whole.
As Lam Research (LRCX) CFO Doug Bettinger explained at Bank of America's Global Technology Conference last week, the AI investment cycle is still in the “very early stages.”
As companies start integrating AI into their planning and corporate spending, the next round of growth, or the second wave of AI, is expected to take hold.
“More and more enterprises are adopting hybrid cloud architectures, focusing on building modern applications, and beginning their enterprise AI journeys,” said Rajiv Ramaswami, CEO of Nutanix (NTNX).
For investors looking to add to their portfolios, Aria likes Broadcom (AVGO), Marvell Technology (MRVL), Micron (MU) and Arm (ARM) as winners in the continuing wave of AI. Aria wrote in a client note last month that he thinks rising demand for computing, networking and memory will be a “multi-year growth driver” for the group.
Sheena Smith Anchor for Yahoo Finance. Follow Smith on Twitter translatorHave a tip on a deal, merger, activist situation or anything else? Email me at seanasmith@yahooinc.com.
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