To The Moon

$NVIDIA Corp(NVDA)$ has completed five stock splits since 2000, the most recent one being a 1-for-4 split in July 2021. Stock splits don't create value, but they expand the pool of investors by reducing the price per share, making them more accessible to small-capital retail investors. Therefore, stock splits tend to boost the stock price, which is a positive development.

In 2023, NVIDIA's stock price surged 239% to $531, and is inching closer to the $748 price of the last stock split (the price after the split is $187). In 2024, Nvidia's stock will most likely only get more expensive.

Will Nvidia make a comeback in 2024?

There is a surge in demand for NVIDIA's graphics processing units (GPUs). The company's third quarter revenue increased by over 200% year-on-year, driven primarily by the H100 data center GPU. In the AI chip market, competition from Advanced Micro Devices Inc (NASDAQ: AMD) and Intel (NASDAQ: INTC) will intensify this year, but NVIDIA is investing heavily in innovation, and large data center companies are still lining up to install its new chips.

In November, NVIDIA launched its new H200 chip specifically designed for processing vast amounts of information to train large language models for generative AI applications. The company said that the AI inference speed of the H200 is twice as fast as that of the H100.

Additionally, NVIDIA stated that cloud service providers drove around half of the third quarter data center revenue, with Amazon Web Services (AWS), Google Cloud from Alphabet, Microsoft Azure, and Oracle Cloud already adopting the H200 chip.

Although NVIDIA's revenue growth is expected to slow in the near future, double-digit growth remains feasible. In addition, management stated during the November earnings call that in order to meet growing AI demand, the company will release new products at a faster pace.

Stock splits are inevitable

NVIDIA has close relationships with all major cloud service providers, and its innovative capabilities and long-term GPU development expertise allow it to sell its chips at a premium. This is the foundation for the company's high profit margins and rapid earnings growth.

Analysts expect revenue growth of 56% and earnings per share growth of 66% for NVIDIA this year. Although growth has slowed significantly from triple-digit growth in recent quarters, the stock's valuation remains reasonable.

Based on next year's expected earnings, NVIDIA's stock has a dynamic P/E ratio of only 25, less than half of its earnings growth rate. This usually means that this growth stock is still undervalued. The continuous growth of AI chip demand should ensure that NVIDIA maintains its growth trajectory, while the relatively reasonable valuation creates favorable conditions for the stock's appreciation, and increases the likelihood of a stock split.