Yesterday after the close, NVDA reported 1Q24 (ending in April) earnings that exceeded the analysts’ consensus by about 20%. The 10Q is not yet available, but my quick view of the data released yesterday says to me that almost all the growth came from AI, and that gross margins and operating leverage to date from this business segment are huge.
The company says it anticipates sales in the second fiscal quarter that my back-of-the-envelope numbers say imply that 2Q eps will be about 20% higher than the current Wall Street consensus.
(I should mention that I’ve sold about 10% of my position this morning, partly because I have a very large position in semiconductor-related stocks and partly because my NVDA position itself has gotten to be larger than I’m comfortable with.)
a 10/1 stock split
As part of the earnings announcement, NVDA also said it will split its stock 10/1. This means that if you hold 10 shares each worth $1100 pre-split, post-split you’ll have 100 shares worth $110 each.
Why do this?
In today’s world, it’s more a psychological thing, I think, than anything else. Yes, especially in NVDA’s case, it’s less likely that potential owners will opt for fractional shares (I’ve never bought or sold fractional shares, although I have received them as dividends. My understanding is that order execution can be clunky at times.). And I do think that there’s still some satisfaction in holding a round lot.
A generation or more ago, when commissions were nose-bleed high, and discount brokerage was in its infancy, buying a round lot (almost always 100 shares; IBM, where a round lot was 1, being the most important exception) was significantly less expensive than buying an odd lot (anything less than 100). It was also a sign of a certain level of affluence.
The only academic research I’m aware of about stock splits is pretty loony. There seems to be a consensus view that announcing a split in the US market sparks a period of outperformance. That’s my experience. I find the academic reasoning–that this is a wink and a nod indicating unspecified/secret future good news–odd, though.
There is evidence, however–something also in line with my experience–that the typical stock goes through a period of underperformance once the split happens.
The companies I’ve talked with over the years about this all say they want individual investors, who tend to be extremely loyal to the companies whose stock they hold, on the share register. And they believe that a stock price that’s high enough to signal the company is doing well but not so high that individuals find it out of reach, is the ideal.
It will be interesting to see what happens here.