June 14, 2024


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Are billionaires charging Nvidia before a 10-for-1 stock split?

Are billionaires charging Nvidia before a 10-for-1 stock split?

We probably won't know for sure whether billionaires are buying Nvidia stock for another couple of months.

Money attracts money. It's no surprise, then, that some of the world's richest investors own their positions Nvidia (NVDA 3.63%). The company is making significant profits thanks to the growing demand for artificial intelligence (AI) chips.

Nvidia will do a 10-for-1 stock split after the close of trading on Friday, so its shares will start trading at a much lower price on Monday. Are billionaire investors loading up on Nvidia stock ahead of the impending stock split?

Don't count on it

The truth is, we don't know for sure whether billionaires own Nvidia stock. The latest round of regulatory disclosures – revealing their holdings through the end of the first quarter of 2024 – came a few weeks ago. Unless one or more billionaire investors publicly mention that they recently bought Nvidia, it will likely be another few months or so before we know whether they have added to their stakes in the graphics processing unit (GPU) maker.

Based on their activity in the first quarter, you probably shouldn't count on billionaires buying Nvidia before it splits its stock. Many wealthy investors reduced their stakes significantly in the first three months of the year.

For example, Citadel founder Ken Griffin reduced his hedge fund position in Nvidia by approximately 68% in the first quarter. David Tepper sold 44% of Appaloosa's stake in Nvidia last quarter. Stanley Druckenmiller has reduced his Duquesne family office's holdings in Nvidia by 71.5%.

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These investors are fully aware that Nvidia's stock split in no way changes the fundamentals of its business. Dividing the inventory is equivalent to re-cutting the pizza into eight pieces to make it 16 pieces. It's still the same amount of pizza with the same toppings – it's just that the slices are smaller.

In addition, billionaires know that the widespread popularity of fractional stock trading has changed the impact of stock splits. Since many brokerages now allow their clients to buy and sell fractional shares, most investors who want to add Nvidia to their portfolios have been able to do so regardless of its high stock price.

Maybe specific

However, I think there's a very good chance that some billionaire investors will buy Nvidia before its stock split. They could imagine that stock splits for widely followed stocks like Nvidia would still have a psychological impact on retail investors despite the advent of fractional stock trading.

Perhaps the biggest consequence of the Nvidia stock split is that the stock could be added to… Dow Jones Industrial Average In the near future. The main factor preventing Nvidia from being added to the Dow Jones Index was its high stock price. It wouldn't be surprising if a few billionaires increased their hedge funds' stakes in Nvidia in anticipation of exchange-traded funds (ETFs) and mutual funds tracking the Dow Jones buying Nvidia if it were included in the index.

I suspect wealthy investors may be buying Nvidia now for reasons unrelated to the upcoming stock split. The company announced impressive first-quarter results two weeks ago. This quarterly update could have motivated some billionaires who had reduced their positions in stocks to resume buying.

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In particular, Nvidia's optimism about demand for its upcoming Blackwell platform could have lured wealthy investors back into the fold. Blackwell will be the company's most powerful architecture for AI chips to date.

He should You Loading on stock Nvidia?

Does it matter what billionaire investors do regarding Nvidia? Not real. The most important question is: Should it? You Loading on stock Nvidia? The answer to this question depends on your investment style.

Income investors will certainly want to look elsewhere. Although Nvidia pays a dividend, its forward yield is 0.0035%.

Risk-averse investors can also find other stocks that suit them better. Nvidia is priced at a premium based on some valuation metrics due to its massive growth prospects. However, much of this expected growth has already been built into the stock price. If this is not achieved, the stock could fall.

However, Nvidia should be a great choice for growth investors willing to take some risk. Perhaps the looming stock split will provide a major incentive; Maybe it won't happen. Either way, Nvidia's continued innovation should keep it at the forefront of the AI ​​chip market.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.