What’s Next for Stock and Other AI Plays

Nvidia (NVDA) is joining its mega-cap tech peers, becoming the fourth Magnificent 7 stock to be split since 2022.

The chip giant’s 10-for-1 stock split, which will begin trading on Monday, follows significant price growth, with shares rising 212% in the past year. This huge recovery pushed Nvidia into the $3 trillion club, becoming only the third US company to reach that milestone.

“A stock split is a vote of confidence by management that the shares will maintain their value, as the shares [price] typically increases,” said Howard Silverblatt, senior analyst at S&P Dow Jones Indices.

Winthrop Capital Chief Investment Officer Adam Coons expects the split to increase interest from retail investors, but warns that an influx of retail traders could trigger volatility in the stock.

“They may be a little more quick and emotional in their buying and selling decisions, which can lead to greater volatility as you start to dilute institutional buyers,” Coons told Yahoo Finance.

Julian Emanuel of Evercore ISI sees the increased volatility as an opportunity to buy Nvidia – a stock he sees as a “generational opportunity” and the “standout brand” tech stock of this era.

“While high-profile splits have often fueled stock volatility – speculative buying and profit-taking around the event – ​​the thinning of the trees in the forest after the split catalyzes the buying opportunity for the patient investor,” Emanuel wrote.

Historically, stock splits are typically bullish for the companies that implement them, with average returns a year later of 25% versus about 12% for the broader market, according to Bank of America analysis.

Nvidia’s breakneck gains have driven the broader market to record highs. Its recovery has accounted for about a third of the S&P 500’s return since the beginning of the year and more than a quarter of the S&P 500’s return in May, according to Silverblatt.

Wall Street has become even more bullish on the stock since its May 22 earnings report. Last week, Bank of America’s Vivek Arya raised his price target to a high of $1,500.

“We are at the beginning of what I think would be a decade-long conversion to accelerated computing… We think spending could be between $250 and $500 billion a year, and Nvidia is leading the charge,” Arya told Yahoo Finance.

Nvidia’s stock split not only signals management’s confidence in the chip giant, but also excitement and optimism about the AI ​​industry’s broader growth potential.

As Lam Research (LRCX) CFO Doug Bettinger explained to me at the Bank of America Global Technology Conference last week, we are still “very, very early” in the AI ​​investment cycle.

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The next round of growth – or the second wave of AI – is expected to materialize as companies begin to integrate AI into their business planning and spending.

“More and more companies are adopting hybrid cloud architectures and focusing on building modern applications and beginning their journey to enterprise AI,” Nutanix (NTNX) CEO Rajiv Ramaswami told me.

For investors looking to grow their portfolios, Arya likes Broadcom (AVGO), Marvell Technology (MRVL), Micron (MU), and Arm (ARM) as winners of the ongoing wave of AI. In a note to clients last month, Arya wrote that it sees increasing requirements in compute, networking and memory as a “multi-year growth engine” for the group.

Sean Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Tips on business, mergers, activist situations or anything else? Email seanasmith@yahooinc.com.

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