When it comes to artificial intelligence (AI) stocks, Nvidia (NASDAQ: NVDA) stands out as a top pick for many investors. The company’s graphics processing units (GPUs) are widely regarded as the industry standard for accelerating complex data center tasks, such as training machine learning models and running AI applications.
Since the viral success of the generative AI application ChatGPT in late 2022, Nvidia’s stock has soared by 780%. This surge was driven by a significant increase in AI infrastructure spending, with Nvidia reaping the benefits as one of the key players in the industry.
In June, Nvidia underwent a 10-for-1 stock split, leading to a slight decline of about 2% in its share price. However, historical data suggests that Nvidia stock may experience further downward movement.
Historically, stock-split stocks like Nvidia have outperformed the S&P 500
Companies typically conduct stock splits after experiencing substantial share price appreciation, indicating strong growth potential and a competitive edge. According to Bank of America, companies that split their stock have historically delivered higher returns for shareholders compared to the S&P 500.
Looking at Nvidia’s past performance following stock splits, the company has generally underperformed in the short term. Data from previous stock splits shows that Nvidia’s share price declined by an average of 23% in the first 12 months and remained down by 3% on average after 24 months.
Nvidia’s dominance in the AI chip market
Nvidia holds a significant market share in data center GPUs, which are essential for accelerating AI workloads. The company’s GPUs accounted for 98% of data center GPU shipments in 2023 and continue to be a key player in the AI chip space.
Two key factors contribute to Nvidia’s market dominance: the design of powerful GPUs and a robust ecosystem of software tools like CUDA, which streamline the development of GPU-accelerated applications. With the growing demand for machine learning and AI, Nvidia is well-positioned to capitalize on this trend.
Analysts project a steady increase in Nvidia’s sales over the coming years, driven by the growth of the AI chip market. While the current valuation may seem high at 54 times earnings, the company’s strong financial performance and growth prospects make it a compelling investment for those willing to weather volatility.
Is Nvidia a good investment?
Before investing in Nvidia, it’s important to consider the company’s historical performance and future outlook. While past stock splits have shown mixed results for Nvidia, the overall trend suggests caution in the short term.
Investors should assess Nvidia’s financial performance and market position before making investment decisions. With the potential for strong growth in the AI sector, Nvidia remains a top contender in the tech industry.
Disclaimer: This article was originally published by The Motley Fool. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends Bank of America and Nvidia.