2 Reasons to Buy Nvidia After the Stock Split (and 1 Reason to Sell)
What impact do stock splits have on a company's market valuation and market cap?
Stock splits have no impact on a company's market valuation and market capitalization. A stock split is a corporate action in which a company increases the number of its outstanding shares by issuing more shares to current shareholders1. This action does not change the company's market value or capitalization.
For example, in a 2-for-1 stock split, each investor's share count doubles, and the share price is adjusted to half of its pre-split price. This means that while the number of shares increases, the price per share decreases proportionally, keeping the company's overall market value unchanged.
Although stock splits do not affect the company's fundamentals, they can impact the liquidity of the stock. By making the stock more affordable, it becomes accessible to a broader range of investors, potentially increasing trading activity and demand for the shares. This increased liquidity can lead to positive market sentiment and potentially attract more investors, but the underlying value of the company remains the same.
As of the report, what is Nvidia's market cap and how does it rank globally?
As of the report, Nvidia's market cap is $3.2 trillion, making it the third-largest company in the world.
What are the main reasons suggested for buying Nvidia stock despite its high market cap?
The main reasons suggested for buying Nvidia stock despite its high market cap are:
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The artificial intelligence industry is just getting started: Nvidia is the leading maker of powerful graphics processing units (GPUs) needed to run and train advanced AI algorithms. With the AI industry estimated to be worth $1.3 trillion by 2032, this presents an incredible opportunity for Nvidia, which currently holds a market share of more than 80% in this niche.
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Nvidia isn't overvalued relative to fundamentals: Despite rising by over 3,000% in the last five years, Nvidia's shares are still reasonably priced relative to the company's remarkable growth rate. With a forward price-to-earnings (P/E) multiple of just 48, Nvidia's shares are not much more expensive than other popular AI hardware stocks like AMD, which has a P/E of 47. This valuation suggests Nvidia's stock could have more room to run if the AI industry lives up to analysts' expectations.