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After the market\u2019s close, Nvidia\u2019s 10-for-1 stock split, which was announced in May during the company\u2019s most recent earnings call<\/a>, went into effect. But it will do little to change the company\u2019s $3 trillion valuation<\/a> or its underlying fundamentals, which so far, have investors licking their chops.\u00a0<\/p>\n \u201cYou and I know that a stock split is just cosmetic, at least it is for existing shareholders,\u201d says Paul Meeks, a veteran tech investor and business school professor at military college The Citadel. \u201cWith their investor relations routine, Nvidia is well aware they have to keep on throwing a few bones out there\u201d to investors.<\/p>\n Few other companies have embodied the new corporate hierarchy pecking order ushered in by the proliferation of AI quite like Nvidia has. The company\u2019s stock<\/a> rose 3,174% over the last five years and 218% in just the last year. During its epic run, Nvidia\u2019s market cap soared<\/a> past the likes of Amazon<\/a> and Alphabet<\/a>. Before the 10-for-1 split, the stock was at a stratospheric $1,209.\u00a0<\/p>\n That price was likely too high for most investors, certainly the retail investors<\/a> the split was meant to attract, according to Humayun Sheikh, CEO of startup Fetch.ai, which provides developer tools specifically for AI. \u201cThe stock split enhances Nvidia\u2019s appeal by making shares more affordable, thus broadening its investor base,\u201d he said.\u00a0<\/p>\n Sheikh too sees the move, at least partially, about investors\u2019 perceptions, saying it was likely \u201cinfluenced by optics\u201d and could accelerate market cap gains.\u00a0<\/p>\n Nvidia\u2019s position as the firm that has cornered the market<\/a> on providing AI developers all the chips and computing power they need isn\u2019t changing because of the stock split. In the first quarter, Nvidia\u2019s sales rose 262%<\/a> annually to $26 billion, outperforming Wall Street\u2019s already lofty expectations.\u00a0<\/p>\n Nvidia\u2019s stock rally also serves as a hint at what the AI boom could still have in store.\u00a0<\/p>\n \u201cNvidia\u2019s change in price over the last year is telling us something about the market, namely, that perhaps AI is the new general purpose technology, like the internet or electricity, which will have massive productivity implications across the economy, and therefore AI companies will benefit greatly,\u201d said NYU business school professor Vasant Dhar.\u00a0<\/p>\n Still, investors are considering a few scenarios in which things might go south for them after the stock split, even<\/a> as they admit the odds are slim.<\/p>\n For Meeks, the only thing that could halt Nvidia\u2019s march to the top<\/a> is an economy-wide slowdown, which he considers unlikely because he expects the U.S. will avoid a recession and that the Federal Reserve will lower interest rates in early 2025. In fact, he\u2019s already thinking about Nvidia\u2019s performance should the economy improve.\u00a0<\/p>\n \u201cIt\u2019d be hard for these stocks to lose their gains if all of a sudden we go from wind in our face with high rates to wind at our back with low rates,\u201d Meeks said.\u00a0<\/p>\n Meanwhile, Sheikh said the retail investors the split was meant to attract are another possible, but unlikely, concern. Individually, retail investors may hold small amounts of Nvidia stock. But collectively, they can make up a significant portion of shares. So any shocks to the system or unexpected changes in their views on the company can still have a notable effect. One need look no further than GameStop<\/a> to understand the outsize influence<\/a> retail investors can have on the market.\u00a0<\/p>\n Reducing the stock to one-tenth of its price could be a double edged sword. \u201cThis approach might appeal to Robinhood-type investors or meme stock enthusiasts,\u201d Sheikh added. \u201cHowever, if the narrative turns against Nvidia and speculative traders start selling off, it could impact the price negatively.\u201d\u00a0<\/p>\n But even if that unwelcome scenario were to happen it wouldn\u2019t change all the market trends propping up the chipmaker.\u00a0<\/p>\n \u201cNvidia already had a huge run up in price, so any tailwind from a stock split will be miniscule in comparison to the \u2018fundamental\u2019 reasons for its performance,\u201d Dhar said.<\/p>\n<\/div>\nWhat could potentially go wrong with Nvidia\u2019s stock split?\u00a0<\/strong><\/h3>\n
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