The just completed 10-for-1 stock split is just one more reason to buy shares of chipmaker Nvidia (NASDAQ:NVDA) hand over fist.
While it is true that the stock split doesn’t change the fundamentals or valuation of Nvidia stock, it does make the shares more affordable to purchase. Investors can now buy NVDA stock for about $120 per share compared to more than $1,200 before the split occurred. With the rally in Nvidia forecast to continue, now might present the lowest price at which investors will be able to buy the stock for some time.
Stock Split Rally
Many analysts expect the just completed 10-for-1 stock split to give a boost to the rally that has sent Nvidia stock up 150% year to date. This is because retail investors who previously couldn’t afford to pay more than $1,200 a share for Nvidia stock are now expected to buy at the lower split adjusted price. At the same time, investors who already own NVDA stock might also be tempted to buy more shares at the lower price.
The 10-for-1 stock split comes as Nvidia’s market capitalization tops $3 trillion for the first time, making the microchip designer the world’s second most valuable publicly traded company after Microsoft (NASDAQ:MSFT). Nvidia surpassed Apple (NASDAQ:AAPL) to take second place. There are rumors that the stock split may lead to Nvidia being added to the Dow Jones Industrial Average (DJIA). Some analysts are speculating that Nvidia could replace Intel (NASDAQ:INTC) in the Dow.
Being added to the Dow 30 would also lead to more buying of Nvidia stock as mutual funds and exchange traded funds (ETFs) that track the Dow’s performance would be required to purchase NVDA stock. Plus, stocks tend to perform strongly after they split. Data from Bank of America (NYSE:BAC) has found that average returns for companies are about 25% in the 12 months after a stock split occurs versus 12% gains for the benchmark S&P 500 index.
New AI Chips
Also contributing to the steady march higher in its share price are reports that Nvidia is launching a new line of artificial intelligence (AI) microchips called “Rubin.” The new Rubin chips are to succeed Nvidia’s “Blackwell” line of microchips that were only introduced in March of this year. The quick turnaround demonstrates how intense both demand and competition for AI microchips and semiconductors has gotten.
Rivals Intel and Advanced Micro Devices (NASDAQ:AMD) also just announced new AI microchips aimed at competing directly against Nvidia. The Rubin line of AI chips shows that Nvidia is taking the competitive threat posed by Intel, AMD, and others, seriously. Nvidia continues to control about three-quarters (75%) of the global market for AI chips. That dominant position has led to blockbuster financial results and a share price that has climbed more than 200% in the last 12 months.
Buy Nvidia Stock
Nvidia continues to be the stock to own in the current market rally. The company’s share price is rising and the gains are likely to accelerate following the just completed 10-for-1 stock split that has drawn in retail investors. An inclusion in the Dow Jones Industrial Average and its newest line of AI chips will only add to the momentum driving the shares to new heights. For all these reasons, Nvidia stock is a buy.
On the date of publication, Joel Baglole held long positions in NVDA and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
