After the stock market year 2022 proved to be a year to forget for many due to numerous stress factors, the trend reversal occurred in 2023. The particularly badly hit tech stocks, which received further tailwind from the AI hype that emerged in 2023, benefited from this. Amazon and NVIDIA shareholders in particular were able to enjoy significant share price increases. Could this lead to more stock splits in 2024?
• NVIDIA and Amazon each with stock splits in recent years
• Tech stocks with strong gains in 2023
• Good long-term prospects make further stock splits conceivable
Contrary to expectations, the year 2023 was all about recovery after the significant downturn in 2022. Numerous negative factors remained, such as the ongoing war in Ukraine, increased inflation and higher interest rates. However, the economic consequences of the tightened monetary policy were not as harsh as feared, and the prospect of interest rates falling again in 2024 did the rest. Another factor that provided a strong tailwind in 2023, especially for tech stocks, was the trend topic of artificial intelligence (AI), which was suddenly on everyone’s lips following the success of the OpenAI text robot ChatGPT.
NVIDIA Stock Driven by AI Boom
This has helped the chip specialist NVIDIA in particular to achieve massive share price increases. The NVIDIA share gained a total of 238.87 percent in value in 2023 and ended the year at a price of 495.22 US dollars. As The Motley Fool writes, NVIDIA has established itself as one of the most important names in AI and has captured an estimated 90 percent of the AI chip market. Numerous companies have already announced that they want to offer artificial intelligence in their products or services in the future. Others are already one step further and have already integrated the first AIs into their offering. With the increasing use of the new technology, the requirements for installed chips are also increasing, which in turn benefits the chip designer NVIDIA. This helped the tech giant achieve massive sales increases in 2023.
Past stock splits of NVIDIA stock
But NVIDIA has been an integral part of numerous investor portfolios since 2023. NVIDIA’s business has also experienced a real boom in previous years. The NVIDIA share has already gained more than 1,000 percent in value since 2018. This prompted the company to carry out a 4:1 stock split in July 2021. This was the fifth stock split since 2000. As The Motley Fool argues, NVIDIA EPS could climb to $24 per share by the end of fiscal 2026. If you multiply this value by the expected price-earnings ratio of 40 for NVIDA shares, this would result in a potential share price of $960 by the end of the announced period. Given such potential, another stock split seems entirely possible. Finally, the stock split was announced in 2021 when the stock was at a level of $560. However, the company has not yet announced any such plans.
In the past, the visual discount on NVIDIA shares was definitely worth it. After the last split was announced, the share price even exceeded $800. However, it must be said that NVIDIA’s two stock splits in 2006 and 2007 initially did not bring the desired success, as Investor’s Business Daily (IBD) reminds us in an article. This is because a stock split can also result in the share attracting greater interest from short sellers. Especially if a stock had already had a very strong run before the split was announced. After the 2:1 split in 2006 and the 3:1 split in 2007, NVIDIA shares fell to a low and needed some time to recover.
Amazon shares on the rise in 2023
Another company that is eligible for further splits due to past stock splits is the US retail giant Amazon. After Amazon struggled with some problems in 2022 given the generally difficult market environment, the quarters in 2023 showed an economic recovery and a return to growth. Amazon is no longer just benefiting from its e-commerce business, but has also built up another lucrative mainstay with its cloud service Amazon Web Services (AWS).
Here too, the topic of artificial intelligence is becoming increasingly important and Amazon is already working on building a promising position here, as The Motley Fool writes. The tech giant is already investing heavily in the new technology and is already making a variety of AI tools available to AWS users. Additionally, Amazon has already dabbled in the chip market itself in 2023, announcing a new AI chip for its cloud services in November to take on other rivals such as Microsoft and Google, as Reuters reports.
Amazon stock splits in the past
Amazon has already optically discounted its own shares four times. The largest stock split occurred in June 2022, when Amazon shares were split 20:1. The previous splits were much further back, namely two in 1999 and one in 1998. And the Amazon share also recorded significant price increases in 2023. The e-commerce giant’s paper gained 80.88 percent in value. Nevertheless, Amazon shares are still far from the level they reached before the 2022 stock split. At the time, the stock was trading at $2,447, making another split unlikely in the near future.
Good prospects
Nevertheless, the prospects for Amazon shares are good, as The Motley Fool argues, justifying this with the company’s rapidly increasing operating cash flow, which is not based on Amazon’s online retail business, but rather, as already described, on the tech giant’s side business . There are also arguments that would speak in favor of Amazon when it comes to valuation, even if this sounds rather unlikely at first glance. Although Amazon shares are not exactly cheap in terms of the price-earnings ratio, according to The Motley Fool, the shares would be cheaper than they have ever been in terms of expected cash flow. In the case of Amazon, operating cash flow is a better evaluation criterion than the price-earnings ratio because it is reinvested directly in the business. In the long term, price increases are therefore quite conceivable. However, whether this will result in further stock splits remains to be seen.
Editorial team finanzen.net
This text is for informational purposes only and does not constitute an investment recommendation. finanzen.net GmbH excludes any claims for recourse.
Selected leverage products on Amazon
With knock-outs, speculative investors can participate disproportionately in price movements. Simply select the lever you want and we will show you suitable open-end products on Amazon
The leverage must be between 2 and 20
Advertising