What happened

Nvidia (NASDAQ:NVDA) climbed 4.3% on Wednesday, following its 4-for-1 stock split on Tuesday.

So what

Stock splits don’t change the fundamental value of a business. A 4-for-1 split is in many ways like exchanging a $1 bill for four quarters. The total value is the same; it’s just divided into more pieces.

Nevertheless, traders do tend to get excited about stock splits, and this can positively impact a stock’s price leading up to the split. After the split occurs, however, traders often take the opportunity to book short-term profits. And many investors, who are now in possession of more shares, use it as a chance to sell part of their holdings and book some long-term profits. 

These short-term price dynamics appeared to impact Nvidia’s stock in recent weeks. Its share price rose 25% from when it announced its stock split on May 21 until July 19. And after the split took place on July 20, Nvidia’s shares fell as much as 3.5% before ending the day down about 1%. 

A person is pointing to a stock chart that rises, then falls, then rises again.

Image source: Getty Images.

Now what 

Now that the split has occurred, investors appear to be focusing on Nvidia’s fundamental growth drivers once again. And in this regard, Nvidia’s future appears bright. Rising demand for its chips in booming markets, such as data centers and gaming, are driving sharp increases in revenue and profits. With this likely to remain the case for the foreseeable future, today’s gains could be just part of a far larger upward move for Nvidia’s share price in the coming years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.





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