Nvidia stock split sparks criticism but may aid shares
Nvidia announced a 10-for-1 stock split on May 22, 2024, prompting mixed reactions from investors and analysts. While some view the move as a way to distract from the company's high valuation, others believe it could broaden its investor base and support the stock price. The announcement came amid broader concerns about the risks facing high-flying tech stocks like Nvidia.
Nvidia Corp. revealed plans for a 10-for-1 stock split after the market close on May 22, 2024, with the change set to take effect on June 10, 2024. The split will reduce the share price from around $1,000 to approximately $100, aiming to make the stock more accessible to retail investors. Shares of Nvidia jumped 5.7% to close at $1,095.90 on May 23, reflecting initial positive market sentiment.
The decision has not been without controversy. Critics argue that the split serves as a gimmick to mask Nvidia's elevated valuation, which stands at about 70 times forward earnings and 35 times sales, according to market data. This comes at a time when high-flying semiconductor stocks, including Nvidia and peer Broadcom Inc., face heightened risks due to the AI boom potentially leading to an overvaluation bubble. Broadcom, which announced its own 10-for-1 split earlier in the month, trades at around 15 times sales, underscoring similar concerns in the sector.
Despite the backlash, some analysts remain optimistic. Harsh Kumar, an analyst at Piper Sandler, noted that while the split does not alter Nvidia's fundamentals, it could help the stock by attracting more individual investors. "While the split may not change the company's fundamentals, it could make the stock more accessible," Kumar said. He maintained a buy rating on Nvidia with a $1,200 price target.
Broader market context highlights the precarious position of these stocks. With the S&P 500 near record highs, analysts warn of potential corrections driven by factors like rising interest rates and intensifying competition in AI chips. Nvidia's dominance in graphics processing units for AI applications has fueled its rapid rise, but any slowdown in demand could amplify downside risks. No direct contradictions appear between reports on the split details, though perspectives on its impact vary: one emphasizes potential benefits, while the other stresses overarching valuation risks.