Why Nvidia’s stock split ‘does nothing’ for its appeal
Although Nvidia’s share price has been steadily climbing since it confirmed a stock split, one observer is not buying into the hype.
- Nvidia Corp (NASDAQ: NVDA) share price rallies to a new high of US$720 this week
- The largest chipmaker in the US by market cap said last week shareholders have approved plans to double the number of common stock
- Nvidia will begin trading on a stock-split basis from 20 July 2021
- One market watcher says the current rally is proof that ‘there’s just too many individual investors involved’
- Ready to trade Nvidia shares? Open an account today
Nvidia stock price: What's the latest?
Nvidia shares have rallied as much as 4% since announcing that it has gotten the approval for a previously proposed stock split.
The US’ largest chipmaker said in a regulatory filing submitted on 07 June 2021 that ‘stockholders approved an amendment ... to increase the number of authorized shares of common stock’ from two billion to four billion.
What this now means is that each shareholder on record as of 21 June 2021 will receive three additional shares for every common stock they hold.
This process will take place after the market closes on 19 July 2021. Nvidia will then begin trading on a stock-split basis from 20 July 2021.
Following the split, the price of each share is expected to drop to roughly US$175 from the recently traded price of US$700. Shareholders will then hold four shares worth US$175 each, versus holding one worth US$700.
Existing shareholders will have the additional shares deposited into their brokerage accounts once the stock split is official, although this process might take up to a few days for different brokerage firms.
Nvidia first revealed its intentions for a four-for-one stock split in its first-quarter 2021 earnings release. It had stated that it planned to make its shares ‘more accessible to investors and employees’.
How do analysts view Nvidia’s stock split?
According to CNBC anchor and The Street founder Jim Cramer, the stock split ‘does nothing’ in making Nvidia more appealing, and that investors should only buy into a stock based on a company’s fundamentals.
‘The fact that the stock went up on the split news just shows that there’s too many individual investors involved, and who will eventually realise “wow I just paid up for something that didn’t really move the stock and I thought it was going to because there was a lot of juice involved,”’ he said during a recent video interview with The Street.
Nvidia’s share price rose over 5% in the days after it first announced the stock split.
The semiconductor counter is up roughly 36% year to date. Analyst sentiments published by MarketBeat show a consensus rating of ‘buy’ and an average price target of US$662.56 on the stock.
The price target represents a 7% downside potential from the chipmaker’s last traded price of US$712 on Wednesday (16 June 2021).
The latest target came from Evercore ISI analyst C.J. Muse, who reiterated an ‘outperform’ call and price target of US$750 on 03 June, citing that Nvidia’s gaming business potential ‘remains greatly underappreciated’.
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