Nvidia's Rise Explained | Stock Surge, AI Dominance, 10:1 Stock Split

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Synopsis:

Nvidia's stock soared, turning $1,000 into $255,000 in ten years. With a recent 10-for-1 stock split and AI advancements, Nvidia's valuation approached $3 trillion, briefly surpassing Apple. CEO Jensen Huang's leadership played a pivotal role in this tech giant's continued success.

An Overview

In June 2024, Nvidia briefly became the second-most valuable company globally, with a market capitalization of $3.01 trillion — slightly more than Apple Inc.’s $3 trillion. Over the last ten years, Nvidia has grown phenomenally, and it has done so by leaps and bounds compared with the S&P 500. 

In this article, we will look at why Nvidia’s shares have been doing so well lately, what role it plays in pushing forward technology and some recent strategic moves, such as stock splits that have helped them strengthen their position among other companies.

Ten-Year Stock Performance

  • Substantial Returns: A $1000 investment in Nvidia ten years ago is now worth over $255,000. However, the same amount invested in a broad-market ETF like the Vanguard S&P 500 ETF would only be around $3,300.

  • Valuation Metrics: Nvidia’s forward price-to-earnings ratio sits at just under 47, considerably higher than the S&P 500’s average of roughly 21. This soaring valuation demonstrates investor’s confidence in the company’s long-term growth outlook.

Recent Developments

Stock Split and Price Surge

  • 10-to-1 Stock Split:  Recently, Nvidia made its stock 10 times cheaper by executing a 10 to 1 split. This made them more affordable for a wide range of investors. It divided the stock price from around $1,200 to $120 per share.

  • Post-Split Performance: Ever since the split, Nvidia’s stocks have continued to rise. And since May 2023, when the company reported stellar earnings, the stocks rose by 287%.

AI and Market Expansion

  • AI Supremacy: The supremacy in manufacturing AI chips still belongs to Nvidia. It produces graphics processing units (GPUs) used by many artificial intelligence systems across different sectors, such as gaming, cryptocurrency mining or self-driving cars.

  • New Product Launches: During COMPUTEX 2024, CEO Jensen Huang announced the Blackwell ecosystem by Nvidia and showcased improvements made in AI-driven manufacturing as well as robotics.

  • Strategic Investments: Nvidia is planning to establish its regional headquarters in Taiwan. This move will reinforce its commitment to the country amidst geopolitical tensions. It will also secure Nvidia’s supply chain with TSMC, the sole producer of its AI chips.

Investor Confidence

  • Analyst Upgrades: Goldman Sachs, Argus and Oppenheimer are some analysts who have all increased their price objectives for Nvidia because of strong AI technology demand and expected new product releases.

    • Goldman Sachs: Raised the target from $120 to $135 – referring to continued dominance in accelerated computing by Nvidia.

    • Argus: Revised the target to $150 – pointing out growth potential outside of data centres and AI.

    • Oppenheimer: Increased the target from $110 to $150 – acknowledging Nvidia’s end-to-end AI hardware, networking and software solutions.

Strategic Implications of the Stock Split

  • Accessibility: The main objective of the 10-to-1 stock split was to give retail investors and employees more opportunity to buy shares in Nvidia, thereby adding market activity and liquidity.

  • Psychological Impact: Stock splits typically make investors think that the stocks are more affordable, which results in them buying more shares. This contributes to a positive attitude and bullish sentiment towards the stock.

  • Market Capitalization: Although the market capitalisation is not affected by this move, it increases the outstanding shares count aligning with its growth plan and investor relations objectives.

Nvidia's Role in the Technological Singularity

New technologies created by Nvidia are the key players in achieving artificial general intelligence (AGI) and artificial superintelligence (AST), which are expected to drive transformative societal changes.

Nvidia has driven AI research forward by creating some of the most powerful GPUs and by developing CUDA, an open software platform. Thus, their contributions have been at the centre stage when it comes to machine learning as well as other forms of AI technology such as deep neural networks that can simulate human intelligence.

CEO Jensen Huang's Leadership

  • Celebrity Status: The CEO of Nvidia, Jensen Huang has gained popularity, a rock star-like status and draws huge crowds wherever he goes. One such event was the COMPUTEX 2024 where he attracted massive attention.

  • Leadership and Vision: If it were not for his ability to see into the future and guide the company through technology changes and market shifts, growth would have been challenging for Nvidia.

  • Cultural Impact: Among those involved in tech industries across the world, Huang is much admired because of his good leadership skills and also his unique fashion sense of wearing leather jackets.

Essential Highlights

  • Geopolitical Risks: Despite geopolitical tensions and conflicts over Taiwan’s semiconductor industry, Nvidia is well-placed for growth in AI and computing going forward.

  • Competitive Advantage: Technologically speaking, Nvidia is much ahead of companies such as AMD or Intel. They have achieved this because of the high costs incurred when changing suppliers and by continuing to innovate.

  • Future Outlook: In the next ten years, AI systems may well become the main driver behind productivity in a wide range of sectors –– something which could provide an even greater boost for Nvidia.

In Conclusion

Nvidia’s tremendous growth demonstrates its position at the forefront of AI and computing technology. Recent strategic moves such as a stock split, innovation and strong leadership from Jensen Huang will help to keep the company growing.

With the continued reshaping of industries and societies by AI technology, Nvidia is likely to increase its presence across markets too. This means there are good returns on offer but it will require investors who can handle a high valuation along with all the risks that go with it.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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