It had passed Apple briefly as second most valuable company. By the look of its strength, it will not be long until it is solidly in place as number 2, as AI takes off all over the world and the company struggles to fill orders. It is always a great problem to have: everyone wants their products.
Shares of Nvidia (NASDAQ: NVDA) have surged following the company’s strong first-quarter earnings report on May 22 and the announcement of a 10-for-1 stock split. The stock has jumped roughly 20% in less than two weeks, continuing to rise into the split, which is set to take effect after hours on June 7. Shares have climbed nearly 10% since the initial announcements.
Shares of #Nvidia fell today ahead of the company’s 10-for-1 forward stock split going into effect tomorrow after the close. Should you buy on the dip? Ben Reitzes of @MeliusResearch weighs in.@MorganLBrennan #AI $NVDA pic.twitter.com/PeYUG4B9xa
— CNBCOvertime (@CNBCOvertime) June 6, 2024
Investors have reacted positively to Nvidia’s upcoming stock split for several reasons. Firstly, stock splits are often perceived as a positive signal from management, indicating confidence in the company’s continued growth. Although a split does not change the fundamentals of the business, it can boost investor sentiment and signal that the share price has reached a significant milestone, making it ready for another upward run.
Stock splits also make shares more affordable for retail investors, which can increase demand. Additionally, there is evidence that stock splits are associated with outperformance over the following year, likely due to the momentum that led to the split and the renewed investor enthusiasm it generates.
In Nvidia’s case, there is an added layer of bullish sentiment among investors due to speculation that Nvidia might replace Intel (NASDAQ: INTC) in the Dow Jones Industrial Average (DJIA), establishing it as a blue-chip tech stock.
Why Nvidia Isn’t in the Dow Yet
The Dow Jones is a price-weighted index, meaning each stock’s impact on the index is based on its share price, unlike the market cap-weighted S&P 500 and Nasdaq indexes. If Nvidia were added to the Dow at its pre-split share price, it would disproportionately influence the index. However, post-split, Nvidia’s share price should be around $110 to $120, aligning it with the median price of current Dow components.
Today’s NVIDIA’s Stock Split Might Be The Greatest Wealth Transfer Opportunity Ever On The Stock Market pic.twitter.com/C2jdZphDCv
— Reno Omokri (@renoomokri) June 7, 2024
Why Intel Could Get Booted from the Dow
The criteria for inclusion in the Dow Jones are not strictly defined, but according to S&P Global, a Dow stock should be a blue-chip company with an excellent reputation, sustained growth, wide investor interest, and sector balance. Intel’s recent performance raises questions about its ability to meet these criteria. Over the past decade, Intel’s stock has gained just 11%, significantly underperforming the Dow Jones. Furthermore, Intel hasn’t posted a quarter with double-digit revenue growth in nearly four years, while competitors like Nvidia have shown much faster growth.
The most recent stock to be removed from the Dow was Walgreens Boots Alliance, following several quarters of weak results. If Intel were to be dropped, Nvidia would be a logical replacement due to its significant presence in the semiconductor industry. Nvidia now has a market cap of $2.8 trillion, vastly larger than Intel’s $129 billion.
Intel has new chips on the way and if they can make it to 2025 without being removed, they can then capture the imagination of many once again.
What Joining the Dow Would Mean for Nvidia Stock
Joining the Dow would likely not have a massive direct impact on Nvidia’s stock price since the Dow is not as widely tracked by ETFs as the S&P 500. The SPDR Dow Jones Industrial Average ETF is the only ETF offering direct exposure to the Dow Jones index.
However, inclusion in the Dow would be a psychological win for Nvidia, marking its success as a lasting achievement rather than a fleeting phenomenon. Nvidia is now the third most valuable company globally, and the most valuable not included in the Dow, as both Apple and Microsoft are members.
At the same time, Intel’s removal would be another setback, reflecting its long-term underperformance. Better representatives from the semiconductor industry, such as Nvidia, are available for the index.
Here’s everything you need to know about Nvidia’s upcoming stock split and why it’s more important to markets than the run-of-the-mill stock split. pic.twitter.com/ZfRATM2gcB
— TheStreet (@TheStreet) June 7, 2024
Rebalancing the Dow Jones is rare, but in this case, it makes sense. Nvidia replacing Intel in the Dow Jones Industrial Average could be on the horizon following the stock split, though the timing of such a decision remains uncertain.
Major Points:
- Nvidia’s stock has surged by approximately 20% following a strong first-quarter earnings report and the announcement of a 10-for-1 stock split.
- The stock split, set to take effect after hours on June 7, has further boosted shares nearly 10% since the announcement.
- Investors are optimistic about the split, which signals confidence from management, makes shares more affordable, and often correlates with stock outperformance.
- Speculation is rising that Nvidia might replace Intel in the Dow Jones Industrial Average, enhancing its status as a blue-chip stock.
- Intel’s long-term underperformance contrasts with Nvidia’s rapid growth, making Nvidia a potential candidate for the Dow after its stock split.
Lap Fu Ip – Reprinted with permission of Whatfinger News