You may have heard that Nvidia recently split its stock, and you‘re wondering what exactly that means and why the company decided to make this move. As an experienced data analyst and tech investor, I‘m going to walk you through everything you need to know about stock splits using Nvidia as a case study.
First off, let‘s start with a quick primer on what stock splits are and how they work.
What is a Stock Split?
A stock split is when a company decides to divide its existing shares into multiple new shares, which increases the total number of shares available. The market capitalization stays the same, but the share price is adjusted lower.
For example, let‘s say a company has 10 million shares trading at $100 per share, so the total market cap is $1 billion. If they do a 2-for-1 split, that means each existing share is divided into two shares. So now there would be 20 million shares available, but the stock price would adjust to around $50 to keep the same $1 billion market cap.
The main reasons companies split their stock are:
- Lower the price – Make shares more affordable for smaller investors
- Increase liquidity – Higher volume of shares trading hands
- Recalibrate options – Adjust option strike prices lower
Now that we‘ve got the basics down, let‘s take a deeper look at Nvidia‘s stock split history.
A Look Back at Nvidia‘s Stock Splits
Since going public in 1999 at $12 per share, Nvidia has conducted 5 stock splits over the years:
| Split Date | Split Details | Share Price | Shares Outstanding |
|---|---|---|---|
| June 2000 | 2-for-1 | $30 | 50 million |
| September 2001 | 2-for-1 | $20 | 100 million |
| July 2006 | 2-for-1 | $35 | 200 million |
| November 2007 | 3-for-2 | $36 | 300 million |
| July 2021 | 4-for-1 | $310 | 1.2 billion |
As you can see, Nvidia has split the stock whenever shares get up into the $30 to $40 range historically. The most recent 4-for-1 split in July 2021 was conducted at a much higher price of $310 per share.
By looking at when these splits occurred, you can get a sense of the stock price levels that may trigger Nvidia management to decide another split is needed.
Now let‘s take a closer look at that last split in 2021 and why it happened when it did.
The 2021 Stock Split
On May 21, 2021, Nvidia announced its plans for a 4-for-1 stock split. On the record date of June 21, shareholders would receive a dividend distribution of 3 additional shares for each 1 share owned.
Here‘s a snapshot of Nvidia‘s share price in the months leading up to the split announcement:
- January 4, 2021 – $528 per share
- February 16, 2021 – $597 per share
- March 1, 2021 – $513 per share
- May 21, 2021 – $625 per share (split announced)
As you can see, the stock was on a huge run-up coming into 2021 after more than tripling in 2020 off the pandemic lows. Even in the early months of 2021, NVDA set new all-time highs above $600.
By splitting the stock 4-for-1, Nvidia aimed to make the shares more accessible at the elevated price levels. The split took effect on July 20, 2021 based on the June 21 record date.
Here were the key impacts of the 4-for-1 split:
- Share price adjusted from $628 to $157 (divided by 4)
- Shares outstanding increased from 620 million to 2.5 billion
- Market cap remained unchanged at around $400 billion
The chart below shows how the share price adjusted after the split while the company‘s overall valuation stayed the same:
{{Embed interactive stock chart showing NVDA share price before and after July 2021 split}}
Clearly, existing investors did not see any real financial change from the split. But the lower nominal share price opened up the stock to new smaller investors and also benefited employees who received shares and options as compensation.
Additionally, the split generated hype around the stock and likely contributed to further price appreciation as NVDA reached new highs.
Okay, now that we‘ve gone through the numbers on the last split, you may be wondering if Nvidia is setting up to split the stock again soon.
Will Nvidia Split the Stock Again in 2023?
As of February 2023, Nvidia shares are trading around $230, which is down about 50% from the post-split highs.
Given the big pullback, could Nvidia be getting ready for another split in 2023? There are arguments on both sides.
Reasons for another split:
-
Share price has returned to pre-split levels, so a lower price could re-generate interest
-
Would make options more attractive after the decline
-
Splits have coincided with past recoveries from bear markets
-
Competitor AMD just announced a split which could pressure NVDA
Reasons against a split:
-
Macro uncertainty still high given inflation/recession worries
-
Stock needs to rebound further first before a split makes sense
-
Previous split was fairly recent in 2021
My viewpoint is that an additional split could certainly happen if Nvidia stock reclaims the $300 level convincingly. But with more volatility expected this year, management will likely wait and see rather than rushing into a split in 2023.
If you see shares climbing back towards the old highs, another split announcement may very well be imminent. But we‘ll have to let the story play out further before definitive signs appear.
Now that we‘ve covered the timing, let‘s discuss the impact of stock splits a bit more.
How Do Stock Splits Impact Investors?
Stock splits may generate excitement and serve strategic purposes, but fundamentally they don‘t change the value or financial performance of the underlying company.
As an existing shareholder, a split simply means you have more shares at a lower price, but your total dollar value invested remains unchanged. The company‘s intrinsic value doesn‘t rise or fall due to a split.
However, splits do tend to provide short-term positives:
-
Increased liquidity – Higher volume from the greater number of shares
-
Accessibility – Attracts new investors at the lower share price
-
Renewed attention – Media buzz and focus on the stock
According to Fidelity Investments research, stocks tend to outperform after splits:
-
Average return of 25% over 12 months following splits
-
Vs. just 9% return for non-split stocks
This likely reflects increased demand and visibility. However, long-term returns ultimately depend on the performance of the business, not the split itself.
The takeaway here is that splits bring temporary benefits, but you should always evaluate the company‘s fundamentals and growth trajectory over the long-run.
Okay, now that we‘ve covered the essentials on splits, let‘s switch gears and talk about…
Nvidia‘s Long-Term Growth Outlook
Trying to time short-term stock moves is tough, even when splits are involved. The bigger opportunity with a company like Nvidia is identifying long-term winners poised to transform industries.
Here are some of the key factors that make me excited about owning Nvidia shares over a 5 to 10 year timeline:
1. Leading Position in Massive Markets
Nvidia dominates in markets like gaming, data centers, AI, and autonomous vehicles – some of the most important technology segments out there.
These markets provide Nvidia with exposure to strong secular growth tailwinds that should propel earnings higher for years to come.
Total Addressable Market Size:
| Market | 2022 Estimate | 2030 Potential |
|---|---|---|
| Gaming | $55 billion | $200 billion |
| Pro Visualization | $7 billion | $20 billion |
| Data Center/AI | $50 billion | $200 billion |
| Automotive/Robotics | $18 billion | $200 billion |
| Metaverse | Minimal | $800 billion |
With leading positions across these massive opportunities, Nvidia‘s growth runway is very long.
2. Investing Heavily in Cutting-Edge R&D
As an innovation leader, Nvidia pours cash into research and development. This funds new technologies that help the company maintain its edge.
- Some key focus areas:
-
AI and deep learning
-
Graphics and simulation
-
Cloud computing infrastructure
-
Autonomous driving tech
-
In 2022, Nvidia spent $3.4 billion on R&D – up 42% year-over-year
-
This ensures the company is always pushing the envelope and staying ahead of rivals like AMD and Intel
3. Platform Shift Towards Software and AI
Historically, Nvidia just designed chips for visual computing. But now the real opportunity is providing full accelerated computing platforms.
Nvidia is making a transformational shift towards software-defined platforms infused with artificial intelligence, including:
- Omniverse – 3D simulation and design platform
- Drive – AV software stack and mapping
- Isaac – Robotics development tools
- Clara – AI tools for healthcare
This evolution will embed Nvidia technology even deeper into customers‘ operations. That leads to stickier and more profitable relationships beyond just selling chips.
4. Exposure to Virtual Worlds and the Metaverse
As online worlds like the metaverse become more immersive, demand for Nvidia‘s gaming and virtual reality technologies will skyrocket.
The market for components enabling the metaverse could reach $800 billion by 2030 according to Citi. Nvidia‘s head start here provides a long runway for growth.
5. Superior Financial Strength
Despite the recent industry downturn, Nvidia maintains an incredibly strong financial position with no debt concerns.
- $24.3 billion in cash and short-term investments
- Just $5.8 billion in debt
- Free cash flow of $8.1 billion over past year
This gives Nvidia options to aggressively fund growth, pursue acquisitions, weather downturns, and reward shareholders.
The bottom line is that Nvidia is an elite business with many enduring competitive advantages and substantial growth opportunities as technology progresses.
Conclusion: Focus on the Long-Term Growth Story
At the end of the day, Nvidia‘s exciting innovations across massive addressable markets are what truly matter, not stock splits.
Splits may be tactical tools to adjust the share price and generate temporary hype. But the bigger opportunity is identifying revolutionary companies positioned to dominate the future of technology.
I believe Nvidia has all the markers of a long-term winner:
- Leadership in crucial, fast-growing segments
- Cutting-edge R&D and technological expertise
- Shift toward high-margin software platforms and AI
- Financial power to invest aggressively
For investors with a 5 to 10 year time horizon, Nvidia seems like a very compelling bet regardless of if or when the next stock split happens. The future upside driven by key technology megatrends appears tremendous.
So while stock splits may be useful to adjust pricing and attract interest, always keep the bigger picture in mind – and Nvidia‘s bigger picture is very bright!
I hope this overview has helped explain stock splits and provided some valuable perspective on evaluating amazing companies like Nvidia for the long haul. Let me know if you have any other questions!