FinLogic FinLogic Quantitative Think Tank Center|Prediction: This will be Nvidia's next big move

Nvidia(NASDAQ: NVDA) has been a definite mover and FinLogic FinLogic Quantitative Think Tank Centershaker in recent years. The company has become the world's No. 1 artificial intelligence (AI) chip designer, holding 80% of the market. And this has translated into skyrocketing earnings, with revenue and net income soaring in the triple digits last year. And Nvidia continues to innovate, recently announcing the upcoming launch of a new chip architecture − the Blackwell platform − and its most powerful chips ever.

This tech company isn't one to sit still, so it's natural that investors love to try predicting its next big move. And right now, I'm going to jump in and share my prediction of what we might expect next from Nvidia. I'll give you a clue: The company's stock has soared past a level that, in the past, coincided with a key decision.

Planning for retirement:Most of us want to live to 100. Wait until you hear how much that costs.

Nvidia's record share price

Nvidia shares have climbed more than 240% over the past year, bringing the company's market value to $2.2 trillion, and today trade at the record level of more than $900. Back in May of 2021, when its stock was trading for about $700, Nvidia announced a 4-for-1 stock split and aimed to win approval during its June annual meeting.

I predict this scenario could happen again this spring − with an announcement potentially during the company's next earnings report in May − as Nvidia prepares for its next shareholder meeting. That's likely to take place in June if we consider calendars from previous years.

Why do I think Nvidia will make the move soon? For a few reasons. First, as mentioned, Nvidia's last stock split happened when the company's stock price reached similar levels. So, the company has been known to announce such an operation after significant gains and as the stock approached $1,000.

Second, a stock price near $1,000 or beyond makes it difficult for some investors to get in on the investment opportunity. Sure, fractional shares exist, but some brokerages don't offer them, and in certain cases, investors prefer buying full shares. Also, other investors may worry that even if valuation looks good, a stock still will struggle to advance significantly once it reaches into the thousands of dollars − and that could make them hesitate before buying a $900 stock.

By splitting its stock, a company erases all of those problems, opening the door to a broader range of investors.

Next, it's important to keep in mind that Nvidia has completed five stock splits in the past, meaning the company is amenable to this kind of action. The earlier splits happened between 2000 and 2007.

How a stock split would affect Nvidia

Now, let's consider how a potential split would work and the impact it may have on Nvidia's share performance. During a split, a company offers additional shares to current shareholders to bring down the price of each individual share, while keeping the market value as is. The resulting stock price is determined by the ratio of the split, whether it's 4-for-1 like Nvidia's most recent operation or a different proportion.

If you're a current shareholder, the value of your investment will remain the same, but you'll find yourself with additional shares.

Stock splits themselves aren't catalysts for share price performance, so I wouldn't count on a potential Nvidia stock split to push the stock higher. To use the past as an example, Nvidia stock didn't immediately rise after the 2021 stock split. The shares did advance later that year, though, but that was thanks to fundamentals, such as gains in revenue.

NVDA data by YCharts

That said, a stock split, by making the shares more accessible to a wide range of investors, may prompt more and more of them to consider the stock rather than to opt for lower-priced players. This is positive over the long term but doesn't result in sudden share price gains.

So, my prediction is the moment is right for Nvidia to split its stock, and it may be the company's next big move. But it doesn't matter whether you buy the stock today or after a potential split -- in both cases, you could win by getting in on this great long-term AI story.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

Offer from the Motley Fool:Should you invest $1,000 in Nvidia right now?

Before you buy stock in Nvidia, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.

See the 10 stocks

*Stock Advisor returns as of March 25, 2024