Nvidia, the leading artificial intelligence chipmaker, recently executed a 10-for-1 stock split, drawing significant attention and sparking speculation about its potential inclusion in the Dow Jones Industrial Average. This move, designed to make shares more accessible to retail investors and employees, increases the number of outstanding shares without altering the company's market valuation.
"A side-effect of Nvidia's stock split will be to put it in the running to follow Amazon and Apple into the Dow, potentially pushing out fellow chip stock Intel that currently has the lowest weighting," noted Ben Laidler, global markets strategist at digital brokerage eToro.
Following the split, Nvidia's shares opened at $120 on Monday, a stark contrast to their pre-split value of $1,200 on Friday. Despite a slight dip of 0.2%, the stock has surged nearly 27% since the company announced the split and projected robust future performance last month. This growth trajectory enabled Nvidia to briefly surpass Apple, clinching a market valuation of $3 trillion, second only to Microsoft.
Historically, stock splits have been known to attract individual investors who trade in smaller quantities and have less capital to deploy compared to institutional investors. Dennis Dick, a market structure analyst at Triple D Trading, observed, "Historically, when we see runs like this into a split, there is often a hangover effect afterwards, and I'd expect some buyer exhaustion this week."
Goldman Sachs strategists, led by David Kostin, highlighted in a note that recent stock splits have not consistently spurred significant increases in retail trading activity. However, notable exceptions include splits by Amazon in 2022 and Nvidia in 2021. The strategists emphasized that investors generally assign higher valuations to liquid stocks due to their low trading costs and flexibility across various market conditions.
Analysis of 45 Russell 1000 stock splits since 2019 by Goldman Sachs revealed that trading volumes tend to increase briefly following split announcements, with little change observed during and after the splits take effect. This suggests that while stock splits can create temporary spikes in interest, their long-term impact on trading activity may be limited.
The recent split positions Nvidia as a contender for inclusion in the 30-member price-weighted Dow index. Currently trading at around $120 per share, Nvidia's lower price per share makes it a more viable candidate for the Dow, which traditionally prefers stocks with lower prices to ensure a balanced representation of the market.
An S&P Dow Jones Indices spokeswoman, when asked about potential index changes, stated that the organization does not comment or speculate on additions or deletions. However, market observers believe Nvidia's recent performance and the stock split increase its chances of being added to the prestigious index.
Despite the challenges posed by Boeing's delivery delays, which have also impacted rivals like United Airlines, the airline sector expects strong demand for summer travel to bolster performance. Southwest's share price, trading at 19.52 times forward profit estimates, reflects investor optimism about the airline's future prospects.
Looking ahead, Nvidia's stock split and its impressive market performance underscore the company's growing dominance in the AI and semiconductor sectors. With its market value tripling from two years ago and revenue projections showing substantial growth, Nvidia remains a significant player in the tech industry.
