Stock splits may not alter a stock’s intrinsic value, yet they stir up a frenzy in the market. Take the recent examples of Tesla to see how investor sentiment can fluctuate in response to stock split news.
Impacts of Stock Splits
Investor excitement often precedes stock splits, as evident from the 76% surge in Tesla’s stock before its 5:1 split in 2020. Subsequently, the stock price tumbled, demonstrating how market euphoria can be ephemeral. When Tesla announced another split in 2022, the stock took a nosedive against a backdrop of weakened market conditions in the electric vehicle sector.
Nvidia’s Growth Trajectory
Nvidia’s rise mirrors the adage, “luck is when preparation meets opportunity.” The company’s substantial investment in R&D for leading GPUs and AI technology has positioned it as a linchpin of modern data centers. The surge in AI applications has fueled unprecedented demand for Nvidia’s products, bolstering its financial performance.
Highlighted in a graphic, Nvidia’s Q3 fiscal 2024 revenue catapulted by over 200% year over year, with data center revenue reaching $14.5 billion, a 278% increase over the same period. This meteoric surge in demand has granted Nvidia unparalleled pricing power, evident in its remarkable 57% operating margin.
Evaluating Nvidia’s Investment Potential
Nvidia’s exceptional growth is underpinned by robust fundamentals, but its meteoric rise isn’t void of risk, considering the stock’s nearly 400% surge in the last three years. Despite its seemingly lofty P/E ratio of 95, the forward basis ratio of 35 paints a less daunting picture, especially when compared to Microsoft’s valuation.
Although Nvidia presents a compelling long-term investment case, its recent upsurge raises near-term risks. New investors are advised to consider dollar-cost averaging or explore Nvidia’s lesser-known partners to mitigate risk.
Should you invest $1,000 in Nvidia right now?
Before delving into Nvidia stock, investors should note that it didn’t make it to the Motley Fool Stock Advisor‘s list of the 10 best stocks. This suggests that there are other stocks with potentially higher returns in the long run. The service has outperformed the S&P 500 by over threefold since 2002, providing a robust framework for investors seeking substantial returns.
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*Stock Advisor returns as of February 12, 2024
Bradley Guichard has positions in Nvidia. The Motley Fool has positions in and recommends Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
