After a phenomenal run as S&P 500’s top performer in 2023, NVIDIA Corporation (NVDA) remained on its upward trajectory in 2024, primarily fueled by its supremacy in the AI chip sector. Nevertheless, the stock surged beyond $1,000 earlier this year, putting it beyond the reach of many investors. Consequently, a stock split was executed in early June. Let’s delve into NVIDIA’s post-split performance to assess its current investment appeal.
In May, NVIDIA announced a 10-for-1 stock split, propelling the stock from approximately $900 to over $1,000. In the period between the announcement and split date, NVIDIA stock leaped by about 30%. Following the split on June 7, the stock commenced trading on June 10 at around $120 and is currently priced at approximately $123, signifying a more than 2% rise. Historically, NVIDIA stock has shown positive movements post-split, gaining twice out of three times in the following three months. According to a Statista report utilizing Bank of America Corporation’s BAC data, companies that have split their shares exhibited an average return exceeding 25% in the 12 months post-split, double the average return of the S&P 500 during the same period.
Impacts of Fed Rate Cuts Drive Momentum for NVIDIA
Following the split, NVIDIA received a lift from the Federal Reserve’s decision to cut interest rates by 50 basis points in a bid to bolster economic expansion. This was the Fed’s first easing of monetary policy in four years. The reduced interest rates are predicted to lower NVIDIA’s borrowing costs and enhance profit margins, with no adverse effects anticipated on the company’s cash flows essential for growth initiatives. Looking back to the 1990s, in the 12 months subsequent to an interest rate reduction, NVIDIA stock, on average, surged by 20.7%, while the S&P 500 saw a mere 2.9% uptick, as per Dow Jones Market Data.
Driving Forces Behind NVIDIA Stock
NVIDIA’s dominance in the graphic processing unit (GPU) market, the introduction of the coveted Blackwell chips by year-end, and substantial growth in the AI sector have been instrumental in bolstering the company’s stock. The extensive use of NVIDIA’s CUDA software platform vis-a-vis Advanced Micro Devices, Inc.’s AMD ROCm software platform has granted NVIDIA a lion’s share in the GPU market. Projections by Precedence Research indicate that the GPU market is set to swell from $75.77 billion in 2024 to $1,414.39 billion by 2034.
CEO Jensen Huang’s assurance of the impending availability of high-end Blackwell chips, possessing superior AI throughput in comparison to current Hopper chips, has further fueled optimism surrounding NVIDIA. With the AI hardware and software market projected to expand to $990 billion by 2027 from approximately $185 billion in the current year, NVIDIA’s role as a vital hardware and technology provider for AI applications bodes well for the company’s financial outlook.
Robust Fundamentals Set to Propel NVIDIA Stock
NVIDIA’s capacity to generate profits efficiently and manage costs prudently is poised to propel its future share price growth, as evidenced by its stellar return on equity (ROE) and net profit margin. The company’s ROE stands at a remarkable 120%, surpassing the Semiconductor – General industry average of 73.2%. A net profit margin of 55% also outshines the industry’s 47.6%, indicating healthy profitability margins for NVIDIA.
With NVIDIA shares trading above both the 50-day and 200-day moving averages, signaling a bullish trend in the near term, investors can expect continued market favor. While new investors may desire to await a more opportune moment due to rising valuations, existing stakeholders are advised to hold on to their positions amidst the favorable price potential.