Nvidia (NVDA) will undergo a 10-for-1 stock split after the market close, making the stock more affordable for investors. Stacy Rasgon, Managing Director and Senior Analyst at Bernstein, joins Market Domination to discuss how the split will impact the company and potential headwinds ahead.
“Many of these stocks have a growing retail presence, but I think that’s the limit, to be honest. I’m not really considering it. There’s plenty of liquidity in these stocks anyway. There’s no need for retail investors to drive up the price,” Rasgon explains. He believes a stock split would make little difference to the share price, noting that the company has done so before.
Rasgon believes the stock is still cheap relative to the company’s growth. He points to the company’s Blackwell chips and new Rubin chips as key areas of success for the company as the AI race heats up. But he cautions, “As we get closer to earnings and other information, how high are expectations going to be around those numbers, and how does it stack up against those expectations? That’s going to be a concern for the next few quarters.”
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This post was written by Melanie Leal
Video Transcript
At least, invasive stocks are becoming more affordable when it comes to buying a whole share versus a fraction of a share.
The tech giant is set to complete its long-awaited 1-for-10 stock split, in which investors will receive an additional nine shares after the market closes, and shares are set to begin trading at the split-adjusted price on Monday, June 10.
Joining us now is Stacey Lusk, Managing Director and Senior Analyst.
Nice to meet you as always.
So, you know, I know you like looking at the fundamentals of this company.
Well, there’s a lot to say about that, but before we talk about that, let’s talk about the breakup and whether or not you’re considering this as a potential catalyst.
So basically, it shouldn’t really mean anything because, you know, a lot of these stocks have a growing retail presence and they’re becoming more attractive to retail.
I mean, maybe it is, but to be honest, I think it’s marginal and not something I really consider.
Either way, the stock has plenty of liquidity.
There is no need for individual investors to drive up stock prices.
Well, by the way, this isn’t the first time they’ve done a split. They did a 4:1 discount, but it wasn’t that long ago. Maybe 2-3 years ago, and they’ve done splits a few times in their history.
But, I mean, they, they, it wasn’t that long ago and then the stock price went up, but you could argue that that was because, um, you know, the company was growing.
Well, I’m just curious, and this is just for myself and you and your group of other analysts.
So how will it work from Monday onwards?
Will there be another note coming up?
And the new price target is just one-tenth of the previous one.
The reality is, on the back end, they’re probably going to cut my revenue by a factor of 10 and my target price by a factor of 10.
The next time you publish your model, you will publish a revised model, and the only impact will be that your share count will increase by 10x and your EPS will decrease by 10x.
But everything is scaling up nicely.
The next time you publish your actual model, you will likely not need to do anything other than change one line in your model.
So, what’s interesting to me is, as you mentioned in one of your reports, the stock is relatively cheap and has a 35x earnings multiple.
Well, I don’t see anything that would change that yet.
So as long as there’s bearish views on this stock, people are worried about air pockets, capital expenditure digestion, and so on.
In the last earnings call, there was concern about the product transition from the current generation, Hopper, to the next generation, Blackwell, and I think people were worried about some kind of air pocket happening before that transition.
And the company, in terms of the print itself, right now, I mean, look, at some point, we’ll probably see something like that, but right now, it doesn’t seem like the numbers are really going to be good this year.
I expect next year’s numbers to be okay as well.
Temperatures will probably rise, and I think we’ll start worrying about that around 2026.
But, but, now is not the time to worry.
So, for example, if you look at the coming years and you look at what the revenue estimates are, the numbers are going to be smaller in terms of growth or the magnitude of growth. Or will they be?
right.
I mean, um, so, um, um, um, and, I’m just curious, you know, when you hear, of course we have Hopper and we have Blackwell.
Now comes something called a Reuben.
What time?
At what point do you think there’s a relentless need here to keep on giving more and more and ultimately disappointing the market?
Well, I mean, who knows?
right.
Well, II, I think you’re asking a slightly different question, which is, when, if ever, will all of this plateau?
And, you know, we can discuss periodic air pockets in digestion and so on, that’s fine.
It will probably happen someday.
It’s not structural.
I think the structural concern is that, over the long term, a lot of money is being spent and there has to be a return on that investment, either in increased revenue for customers or in increased efficiencies to reduce costs.
Ideally, both.
And given the amount of investment, it would probably all fall apart if it turned out that the returns didn’t justify it.
So, frankly, for NVIDIA and for many others.
So, if you’re worried about this, I think it’s going to be a long-term structural concern, a concern that’s going to last forever.
I personally don’t think so.
I think there’s a use case here.
I think companies are already starting to make profits and are starting to build business models.
We’re still in the early stages. Obviously, we’re still in the early stages.
Hmm, I’m not too worried about that, I mean, the more I worry about some sort of structural issue, that’s probably going to happen.
But again, that’s not right now. You know, it’s going to take several years of investment before we can reach that conclusion one way or another.
So what are some short-term considerations or concerns regarding this stock over the next few quarters?
Yeah.
Look, I think the numbers don’t matter.
So, the numbers are probably going to go up.
So the question is, how does it compare to expectations?
For example, sometimes a stock’s price will fall even though it beats expectations, because it’s not your numbers or your competitors’ numbers that really matter.
Those are actual buy-side, investor numbers, and they usually tend to be higher than the Wall Street analyst numbers you see on your screen.
Well, for now, as I said, I think the numbers are more likely to have an upward bias than a downward bias.
Like I said, I’m not at all worried about a short-term air pocket with their calls.
They also suggested that the next generation of Blackwell, the Blackwell Ramp, would ramp up faster than people thought.
Well, I think in the short term things are looking pretty good.
The question will be how much anticipation for those announcements will increase as earnings and other information approaches.
And how do things look compared to those expectations?
That will be a concern over the next few quarters, but the raw numbers themselves are fine for now.
