Nvidia’s shares have surged strongly since the announcement of the stock split on May 26. A four-to-one split of Nvidia shares will take place on July 20 and will make them more accessible to investors, which means increased demand. However, is it really worth buying?
Nvidia (NVDA) is a US tech giant in the production of graphics and other processors with a market capitalization of half a trillion dollars ($ 507.4 billion as of 12.07.). Nvidia has many strengths, including strong growth for the past six quarters in a row.
However, investors always ask themselves: when is the right moment to buy stocks?
Given that after a four-to-one split of Nvidia shares on July 20 (trading will begin taking into account the split-adjustment – at the new share price), more investors will be able to afford to buy them, it is obvious that demand may increase. However, the share price has jumped more than 30% since the announcement of the split.
Market analysts warn that while Nvidia shares are certainly looking attractive today, the upcoming share split is not a reason why investors should buy shares.
The thing is that after the split, Nvidia shares will receive no additional value…
Nvidia shares will be split or split 4 to 1 – that is, investors will receive four shares for each share they own. The price will also be split by four: for example, instead of owning one share of Nvidia, which is now worth about $ 820, investors will own four shares at a price of $ 205. That is, in essence, the value of the shares will not increase and the shareholders will not receive any additional value.
In its announcement of the share split, Nvidia’s management said only the motive was “to make ownership of shares more accessible to investors and employees.”
Investors should understand that the current 30% rally in Nvidia shares is temporary, as the increased demand for shares is dictated by the excitement around the division.
It is likely that more sophisticated investors are simply waiting for the peak on the eve of the split to place their sell orders and capitalize on this irrational rally in the stock to cash in quickly.
Buy or Sell?
There are many reasons for buying NVIDIA shares, but none of them have anything to do with their upcoming split.
In May, Nvidia reported a record quarter and strong sales of chips for cryptocurrencies, and the release of new processors for data centers could also be another accelerator of stock growth. In addition, investors and market analysts are closely following the process of closing the deal for the purchase of Nvidia by the British tech giant Arm. If this acquisition is approved by national regulators, Nvidia will have new growth opportunities.
Investors should keep in mind that the value of a stock is always influenced by many factors and news, including broader economic and market trends. These factors can at any time affect the stock much more – up or down – than any expectations about the upcoming share split.
To summarize, investors should never buy stock in a company simply because it initiated a stock split.