Nvidia Just Announced a 10-for-1 Stock Split in June. This Artificial Intelligence (AI) Stock Could Be the Next Split.

Nvidia recently announced a 10-for-1 stock split, and this AI-focused software company could be next.

Nvidia (NVDA -0.79%) announced blockbuster first quarter results. Revenue more than tripled due to unprecedented demand for its accelerated computing chips and systems, particularly those related to generative artificial intelligence (AI). At the same time, adjusted profit more than quintupled.

Just as exciting, Nvidia also announced a 10-for-1 stock split — its second split in less than three years — that will take place after the market closes on Friday, June 7, 2024. Shareholders will receive nine new shares. for each stock they own at that time. The stock will begin trading on a split-adjusted basis at market open on Monday, June 10, 2024.

Investors should understand that the stock split will not impact Nvidia’s value or investment position. For example, if a shareholder owns one share worth $1,000 before the split, he or she will own 10 shares worth $100 after the split. Their participation in the company will remain unchanged. But stock splits can still create value for investors.

Specifically, stock splits typically follow substantial stock price appreciation, and this rarely happens by accident. Instead, price appreciation often indicates a competitively advantaged company with excellent growth prospects. Nvidia certainly fits that mold, as does ServiceNow (NOW 2.12%)an AI-focused software company that could then split its shares.

Here’s what investors should know.

Nvidia has a strong competitive position in a rapidly growing market

Nvidia graphics processing units (GPUs) deliver cutting-edge graphics in multimedia and accelerated computing in data centers, including artificial intelligence (AI). The company has over 95% market share in workstation GPUs and over 90% in data center GPUs.

In addition, The Wall Street Journal recently reported that “Nvidia’s chips power all of the most advanced AI systems, giving the company an estimated market share of more than 80%.” This bodes well for Nvidia and its shareholders, as AI spending across hardware, software and services is expected to grow 36% annually through 2030, according to Grand View Research.

One of the reasons Nvidia has been so successful is its supporting software ecosystem. Chief among these products is CUDA, a programming model that allows GPUs to accelerate all kinds of tasks. But Nvidia also offers subscription software and cloud services that support the development and deployment of AI applications in various use cases. The company further expanded its data center presence by moving into networking hardware and central processing units (CPUs), both of which have become booming product lines.

In short, Nvidia provides full-stack accelerated computing systems – including hardware, software and services – for AI applications and other data center workloads. This strategy, coupled with its unmatched technological prowess, gives the company a significant competitive advantage that has supported strong financial results on a relatively consistent basis.

The chart below shows Nvidia’s non-GAAP revenue and net income growth over the last five quarters.

This chart shows Nvidia's non-GAAP revenue and net income growth over the last five quarters.

Nvidia has delivered solid growth in revenue and non-GAAP net income over the past four quarters.

ServiceNow could be the next artificial intelligence company to split its shares

ServiceNow stock has soared 1,130% over the past decade and 145% over the past five years, outperforming the S&P500 (^GSPC 0.80%) in both cases. This stock price appreciation qualifies the company as a stock split candidate but, more importantly, it highlights ServiceNow as a competitively advantaged company with excellent growth prospects, much like Nvidia.

The ServiceNow platform helps businesses digitize and automate the work of different departments. The company is best known for its computer software products. Specifically, ServiceNow is the market leader in IT service management, IT operations management, and AI software for IT operations. However, the company also has a strong market presence in adjacent verticals such as customer service, digital process automation, and low-code development.

ServiceNow has been integrating AI into its products for years, such as intelligent document processing, sentiment analysis, and AI-powered search. Naturally, the company was quick to integrate generative AI capabilities into its products. Now Assist is a generative AI assistant that automates workflows for IT, customer service, HR, and developers. ServiceNow sees itself as “uniquely positioned to bring the full potential of generative AI to the enterprise.”

ServiceNow reported strong first quarter financial results. Revenue rose 24% to $2.6 billion and non-GAAP net income jumped 44% to $3.41 per diluted share. The stock fell after the report’s release on soft guidance that narrowly missed Wall Street’s expectations, but the company maintained its mid-term financial targets at its May analyst day. Specifically, management still expects its addressable market to grow 17% annually to $275 billion by 2026, and the company still estimates revenue will grow 20% annually over the same period.

With this in mind, Wall Street expects the company to grow its earnings per share by 30% annually over the next three to five years. This consensus estimate makes its current valuation of 68.8 times earnings (and 54.5 times adjusted earnings) quite tolerable. In fact, ServiceNow stock has never been cheaper. Investors should take advantage of this opportunity and buy a small position.

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Sara Adm

Aimant les mots, Sara Smith a commencé à écrire dès son plus jeune âge. En tant qu'éditeur en chef de son journal scolaire, il met en valeur ses compétences en racontant des récits impactants. Smith a ensuite étudié le journalisme à l'université Columbia, où il est diplômé en tête de sa classe. Après avoir étudié au New York Times, Sara décroche un poste de journaliste de nouvelles. Depuis dix ans, il a couvert des événements majeurs tels que les élections présidentielles et les catastrophes naturelles. Il a été acclamé pour sa capacité à créer des récits captivants qui capturent l'expérience humaine.
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