Could Nvidia stock split be on the horizon?
While a stock split doesn't fundamentally change the investment value, it certainly brings a ton of attention to the stock involved.
For example, if you have one stock worth $100 per share and the split ratio is 4:1, then you have four stocks worth $25 per share. Nothing fundamental has changed. However, markets do not operate entirely on the basis of fundamentals.
So, what's the impact of a stock split?
Well, Stock splits causes a stir. Investors sometimes flock to stocks that are splitting, but not always. Here's are two recent examples from the same company.
$Tesla Motors(TSLA)$ announced a 5:1 stock split in August 2020. The stock price surged 76% in the three weeks before the split on August 31. But then, in August 2022, Tesla split its stock again, and the price tanked. The electric vehicle market was clearly weak during that time.
As it turns out, fundamentals usually matter most in the long run. Here's a look at $NVIDIA Corp(NVDA)$ 's fundamentals.
Why is Nvidia stock soaring?
Nvidia has spent years and billions of dollars developing the best graphics processing units (GPUs) and artificial intelligence (AI) hardware and software. Their technology is integral to the most advanced data centers.
Nvidia's total revenue for the third fiscal quarter of fiscal year 2024 grew over 200% year-over-year to $18 billion. As a result, data center revenue grew more than 278% year-over-year to $14.5 billion in the quarter. Nvidia's market leader position has met an artificial intelligence hitch, and sales have surged.
The immense demand for Nvidia products means they set the market price, giving them significant pricing power.
Should you buy Nvidia stock now?
Nvidia's stock price has skyrocketed. These numbers suggest Nvidia is growing exponentially while raking in the profits. The stock has surged nearly 400% in the past three years.
Nvidia's stock has a PE ratio of 95, which seems absurd. In the long term, however, the ratio has fallen to 35, lower than $Microsoft(MSFT)$ . Keep in mind that Microsoft also has a historically high valuation, with a PE ratio 21% higher than its five-year average.
Nvidia is one of the most important companies in the world right now. Long-term investors could stand to make a tidy profit. But the recent surge does add some near-term risk to the stock.
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