Tag: Inc. (TSLA)

Ford's Financial Crisis: What It Means for Investors

Posted on by The INO.com Team

The stock market has seen a significant downturn over the past few days, with many overvalued mega-cap tech companies leading the slide. At the top of this is Ford Motor Company (F), whose shares have plummeted by 22% in the past month, far outpacing the S&P 500's 4% decline.

But what’s behind Ford’s sharp decline? A growing consensus among investors is that Ford is struggling due to mismanagement, making it arguably the most poorly run major automaker in the world today. Since the worst of the COVID-19 pandemic, Ford has made a series of costly missteps, especially in its ambitious $30 billion plan to catch up to Tesla, Inc. (TSLA) in the electric vehicle (EV) market. Despite these efforts, Ford is losing an alarming $50,000 on each EV it sells, raising questions about the sustainability of its strategy.

To put things in perspective, Ford's stock was trading around $11 at the end of June 2022, just before the Federal Reserve began raising interest rates. While Ford and major automotive players were impacted by supply chain issues and the semiconductor shortage through much of 2022, high interest rates and relatively weak consumer confidence in the U.S. have all contributed to the company’s decline.

In the second quarter of 2024, which ended June 30, Ford reported a 6% year-over-year revenue growth, reaching $47.81 billion, thanks to a fresh lineup of vehicles, including the all-new F-150. However, this fell short of Wall Street’s expectations of $44.90 billion. The company’s adjusted earnings also missed estimates by $0.21, coming in at $0.47 per share due to higher warranty-related costs. Ford’s net income for the second quarter dropped 4.5% compared to the previous year to $1.83 billion, mainly because its combustion-engine unit posted a pretax loss driven by rising warranty and recall expenses.

This disappointment was enough to cause Ford’s stock to plunge in after-hours trading, wiping out nearly a year’s worth of gains. The company reported $2.30 billion in warranty and recall costs for the last quarter alone, $800 million more than the first quarter and $700 million higher than a year ago.

Ford Blue, the company’s internal combustion engine unit, earned $1.17 billion before taxes during the quarter, down $1.1 billion from the previous year. While investors had hoped for better guidance from Ford Blue, the company cut its outlook instead. On the other hand, Ford Pro, the commercial vehicle unit, posted a $2.56 billion profit, which was $173 million above 2023. Meanwhile, Model E, the EV unit, reported a $1.14 billion loss ($63 million worse than the previous year), further deepening the company’s financial woes.

Despite these setbacks, Ford maintained its guidance range for adjusted EBIT between $10 billion and $12 billion while raising expectations for adjusted free cash flow (FCF) by $1 billion to a range of $7.50 billion to $8.50 billion. Ford Pro's EBIT outlook for the full year has been adjusted upward to $9 billion to $10 billion, thanks to growth and a favorable product mix. However, Ford Blue's outlook has been revised downward to fall between $6 billion and $6.5 billion, reflecting higher-than-expected warranty costs.

The combination of a profit drop and escalating warranty costs from April through June did not sit well with investors and has shaken their confidence in the company. Shares of F are down more than 19% over the past year and nearly 16% year-to-date.

Ford CEO Jim Farley acknowledged the company’s growing pains, particularly in its EV strategy, which has faced significant challenges. Despite these hurdles, Farley expressed confidence in Ford’s ability to reduce losses and build a profitable EV business. The company plans to focus on producing “very differentiated” EVs priced under $40,000 and $30,000, targeting work and adventure segments. However, success in this area will require significant breakthroughs in cost reduction, a goal that remains uncertain.

A pressing concern for investors is whether Ford has enough cash to navigate the ongoing economic challenges. The company’s total debt, excluding its financing operations, is $20.40 billion, while its cash reserves are roughly $20 billion. Given the current macroeconomic environment, marked by high oil prices and interest rates, could Ford face a repeat of its struggles from 2022 and 2023 and underperform the S&P over the next 12 months? Or will it manage to make a strong comeback?

Ford has recently backed off on its ambitious EV goals, recognizing that gasoline-powered vehicles are the primary drivers of short-term profits and possibly will be for some time. The EV versions of its best-selling F-150 pickup and Mustang Mach-E have not met expectations, leading management to argue that the key to success lies in developing a profitable $25,000 EV. However, the path to achieving this remains unclear.

Bottom Line

In summary, Ford’s stock has taken a significant hit due to management’s missteps and the challenges facing its EV strategy. While the company’s leadership remains optimistic about its future, investors are understandably concerned about the road ahead. The Ford family and management have a difficult task ahead as they try to steer the company back on course. For investors, the question remains whether now is the right time to buy shares, with Ford’s stock near its lowest point in recent years, or whether more challenges lie ahead.

Tesla vs. BYD: The Battle for Global EV Dominance in Ride-Hailing

Posted on by The INO.com Team

In 1995, while Elon Musk was kicking off his first venture in Silicon Valley, another entrepreneur, Wang Chuanfu, was starting his own journey in Shenzhen with BYD, making batteries for Motorola. It’s wild to think that nearly three decades later, Musk and Wang would be leading two of the biggest names in electric vehicles, caught in a geopolitical tug-of-war that’s all about manufacturing, energy, tech, and tariffs.

The rivalry between Tesla, Inc. (TSLA) and BYD Company Limited (BYDDY) isn’t as clear-cut as it seems. Despite being on opposite sides of a geopolitical divide, their businesses are deeply intertwined. Tesla’s second-largest market and biggest factory are in China, with significant investment from billionaires like He Xiaopeng. On the flip side, BYD’s largest external shareholders are American giants like Berkshire Hathaway and Blackrock, and it even supplied the largest-ever order for electric buses in the U.S. Plus, BYD sells batteries to Tesla.

These examples illustrate the difficulty of 'de-risking' between two deeply intertwined economies and determining who is 'winning' at any given moment. One thing’s for sure, though: both Wang and Musk remain optimistic about the future.

Tesla vs. BYD: The Competition Is Hot on Its Heels

While TSLA enjoys a near-mythical status among EV enthusiasts, BYD is rapidly closing the gap. In the last quarter, Tesla delivered 443,956 all-electric cars, 5% less than a year ago but 14.8% more than the previous quarter. Meanwhile, BYD’s sales volume surged 28.8% in July compared to the previous year, reaching 342,383 vehicles. In the first quarter, BYD was only 18,000 cars short of Tesla’s deliveries from April to June 2024, indicating how close this race is getting.

TSLA’s total revenues for the second quarter ended June 30, 2024, increased 2.2% from the previous year to $25.50 billion, showcasing its continued growth and success. However, BYD’s strong performance, with a 4% year-over-year increase in operating revenue, indicates a shifting landscape in the EV market, with BYD poised to challenge Tesla’s long-standing dominance.

On the bottom line, TSLA’s non-GAAP net income and EPS for the second quarter declined by 45% and 43% year-over-year to $1.81 billion and $0.52, respectively. In contrast, BYDDY’s attributable net profit for the March quarter grew 10.6% from the prior year to RMB4.57 billion ($640.82 million). Moreover, its EPS stood at RMB1.57, up 10.5% year-over-year.

Despite Tesla’s recent decline in profits, it has maintained its leadership position in EV deliveries, thanks to its significant advantage over other manufacturers in previous years. But with BYD closing in, the competition in the EV market is only getting hotter.

Tesla Has a Massive Leg Up on Its Competitors

Tesla is building EVs cheaper than anyone else, and it's giving Elon Musk's company an edge even with increasing competition. According to Bank of America, Tesla spends less than $30,000 on components per vehicle. This is $17,000 cheaper than other EV makers and about $10,000 below the industry average. Despite shrinking margins and slowing sales, these lower costs keep Tesla ahead of traditional automakers like Ford Motor Company (F) and General Motors Company (GM), who still rely on profits from gas-powered cars and haven't yet made a profit on their EVs.

High input costs lead to higher consumer prices, making it challenging for TSLA’s competitors to compete in a price-sensitive market. To make its cars even more affordable, the company offered attractive financing options in Q2, helping to offset high interest rates.

Elon Musk has big plans to compete with Uber Technologies, Inc. (UBER) through Tesla's autonomous (self-driving) robotaxis dubbed ‘Cybercab’. Musk is heavily investing in this technology and aims to release a more advanced, steering-wheel-free model possibly this fall. He envisions Tesla owners renting out their cars as self-driving taxis, similar to Airbnb, Inc. (ABNB), which could pose a severe challenge to ride-sharing giants like Uber and Lyft.

The idea is that Tesla owners can earn extra income by letting their cars operate as robotaxis during their off hours, with Tesla taking a cut of the profits. Musk even predicts that each participating Tesla could generate around $30,000 in gross earnings annually for its owner.

In a recent earnings call, Musk mentioned significant progress in full self-driving technology, with version 12.5 showing notable improvements. He also announced a slight delay in the Robotaxi product reveal, now scheduled for October 10th, to allow for essential updates and enhancements. Additionally, Tesla is ramping up production in its U.S. factory and building a new Megapack factory in China, potentially tripling its output.

BYD Joins Forces With Uber to Close the Gap With Tesla

BYD, Tesla's biggest competitor, has just struck a major deal with UBER. The deal aims to bring 100,000 BYD electric vehicles (EVs) to Uber’s global fleet, starting in Europe and Latin America before expanding to other regions. To encourage drivers to switch to EVs, both companies would offer incentives like discounts on maintenance, charging, financing, and leasing.

This move comes as global EV sales slow and Chinese automakers face higher import tariffs. The collaboration aims to lower the total cost of EV ownership for Uber drivers, boosting EV adoption on Uber’s platform and providing greener rides for millions of users.

BYD is also working on integrating its self-driving technology into Uber’s platform. With $14 billion invested in smart cars, BYD is developing a “Navigate on Autopilot” feature similar to Tesla’s “Autopilot,” which could potentially make BYD-Uber autonomous vehicles direct competitors to Tesla’s robotaxis.

BYD is expanding its production facilities outside China in response to increased tariffs on Chinese-made EVs. The company has recently secured a $1 billion deal to build a new manufacturing plant in Turkey, which will produce up to 150,000 vehicles annually and create around 5,000 jobs by 2026. They’ve also opened an EV plant in Thailand, with similar production capacity and expected to generate 10,000 jobs. Additionally, BYD plans to establish a passenger car factory in Hungary and another in Mexico.

Given these strategic diversifications and a focus on innovation, BYD has transformed into a global EV powerhouse. The company’s hefty investments in expanding its production capacity and approach to vertical integration have further solidified its competitive edge in the EV market​​.

Bottom Line

BYD’s strategic focus on electric and hybrid vehicles, along with its tech innovations and global expansion, makes it a serious contender against Tesla. As the EV market evolves, the competition between BYDDY and TSLA is expected to intensify, with both companies pushing hard to lead the charge and grab a bigger slice of the global market. The battle for EV dominance is far from over, and it would be interesting to see how these two giants move forward will shape the future of electric mobility.

Nvidia’s GPUs a Game-Changer for Investors?

Posted on by The INO.com Team

NVIDIA Corporation (NVDA), a tech giant advancing AI through its cutting-edge graphics processing units (GPUs), became the third U.S. company to exceed a staggering market capitalization of $3 trillion in June, after Microsoft Corporation (MSFT) and Apple Inc. (AAPL). This significant milestone marks nearly a doubling of its value since the start of the year. Nvidia’s stock has surged more than 159% year-to-date and around 176% over the past year.

What drives the company’s exceptional growth, and how do Nvidia GPUs translate into significant financial benefits for cloud providers and investors? This piece will explore the financial implications of investing in NVIDIA GPUs, the impressive ROI metrics for cloud providers, and the company’s growth prospects in the AI GPU market.

Financial Benefits of NVDA’s GPUs for Cloud Providers

During the Bank of America Securities 2024 Global Technology Conference, Ian Buck, Vice President and General Manager of NVDA’s hyperscale and HPC business, highlighted the substantial financial benefits for cloud providers by investing in NVIDIA GPUs.

Buck illustrated that for every dollar spent on NVIDIA GPUs, cloud providers can generate five dollars over four years. This return on investment (ROI) becomes even more impressive for inferencing tasks, where the profitability rises to seven dollars per dollar invested over the same period, with this figure continuing to increase.

This compelling ROI is driven by the superior performance and efficiency of Nvidia’s GPUs, which enable cloud providers to offer enhanced services and handle more complex workloads, particularly in the realm of AI. As AI applications expand across various industries, the demand for high-performance inference solutions escalates, further boosting cloud providers’ financial benefits utilizing NVIDIA’s technology.

NVDA’s Progress in AI and GPU Innovations

NVIDIA’s commitment to addressing the surging demand for AI inference is evident in its continuous innovation and product development. The company introduced cutting-edge products like NVIDIA Inference Microservices (NIMs), designed to support popular AI models such as Llama, Mistral, and Gemma.

These optimized inference microservices for deploying AI models at scale facilitate seamless integration of AI capabilities into cloud infrastructures, enhancing efficiency and scalability for cloud providers.

In addition to NIMs, NVDA is also focusing on its new Blackwell GPU, engineered particularly for inference tasks and energy efficiency. The upcoming Blackwell model is expected to ship to customers later this year. While there may be initial shortages, Nvidia remains optimistic. Buck noted that each new technology phase brings supply and demand challenges, as they experienced with the Hopper GPU.

Furthermore, the early collaboration with cloud providers on the forthcoming Rubin GPU, slated for a 2026 release, underscores the company’s strategic foresight in aligning its innovations with industry requirements.

Nvidia’s GPUs Boost its Stock Value and Earnings

The financial returns of investing in Nvidia GPUs benefit cloud providers considerably and have significant implications for NVDA’s stock value and earnings. With a $4 trillion market cap within sight, the chip giant’s trajectory suggests continued growth and potential for substantial returns for investors.

NVDA’s first-quarter 2025 earnings topped analysts’ expectations and exceeded the high bar set by investors, as Data Center sales rose to a record high amid booming AI demand. For the quarter that ended April 28, 2024, the company posted a record revenue of $26 billion, up 262% year-over-year. That compared to the consensus revenue estimate of $24.56 billion.

The chip giant’s quarterly Data Center revenue was $22.60 billion, an increase of 427% from the prior year’s quarter. Its non-GAAP operating income rose 492% year-over-year to $18.06 billion. NVIDIA’s non-GAAP net income grew 462% from the prior year’s quarter to $15.24 billion. In addition, its non-GAAP EPS came in at $6.12, up 461% year-over-year.

“Our data center growth was fueled by strong and accelerating demand for generative AI training and inference on the Hopper platform. Beyond cloud service providers, generative AI has expanded to consumer internet companies, and enterprise, sovereign AI, automotive and healthcare customers, creating multiple multibillion-dollar vertical markets,” said Jensen Huang, CEO of NVDA.

“We are poised for our next wave of growth. The Blackwell platform is in full production and forms the foundation for trillion-parameter-scale generative AI. Spectrum-X opens a brand-new market for us to bring large-scale AI to Ethernet-only data centers. And NVIDIA NIM is our new software offering that delivers enterprise-grade, optimized generative AI to run on CUDA everywhere — from the cloud to on-prem data centers and RTX AI PCs — through our expansive network of ecosystem partners,” Huang added.

According to its outlook for the second quarter of fiscal 2025, Nvidia’s revenue is anticipated to be $28 billion, plus or minus 2%. The company expects its non-GAAP gross margins to be 75.5%. For the full year, gross margins are projected to be in the mid-70% range.

Analysts also appear highly bullish about the company’s upcoming earnings. NVDA’s revenue and EPS for the second quarter (ending July 2024) are expected to grow 110.5% and 135.5% year-over-year to $28.43 billion and $0.64, respectively. For the fiscal year ending January 2025, Street expects the chip company’s revenue and EPS to increase 97.3% and 111.1% year-over-year to $120.18 billion and $2.74, respectively.

Robust Future Growth in the AI Data Center Market

The exponential growth of AI use cases and applications across various sectors—ranging from healthcare and automobile to retail and manufacturing—highlights the critical role of GPUs in enabling these advancements. NVIDIA’s strategic investments in AI and GPU technology and its emphasis on collaboration with cloud providers position the company at the forefront of this burgeoning AI market.

As Nvidia’s high-end server GPUs are essential for training and deploying large AI models, tech giants like Microsoft and Meta Platforms, Inc. (META) have spent billions of dollars buying these chips. Meta CEO Mark Zuckerberg stated his company is “building an absolutely massive amount of infrastructure” that will include 350,000 H100 GPU graphics cards to be delivered by NVDA by the end of 2024.

NVIDIA’s GPUs are sought after by several other tech companies for superior performance, including Amazon, Microsoft Corporation (MSFT), Alphabet Inc. (GOOGL), and Tesla, Inc. (TSLA).

Notably, NVDA owns a 92% market share in data center GPUs. Led by Nvidia, U.S. tech companies dominate the burgeoning market for generative AI, with market shares of 70% to over 90% in chips and cloud services.

According to the Markets and Markets report, the data center GPU market is projected to value more than $63 billion by 2028, growing at an impressive CAGR of 34.6% during the forecast period (2024-2028). The rapidly rising adoption of data center GPUs across cloud providers should bode well for Nvidia.

Bottom Line

NVDA’s GPUs represent a game-changer for both cloud providers and investors, driven by superior performance and a compelling return on investment (ROI). The attractive financial benefits of investing in NVIDIA GPUs underscore their value, with cloud providers generating substantial profits from enhanced AI capabilities. This high ROI, particularly in AI inferencing tasks, positions Nvidia as a pivotal player in the burgeoning AI data center market, reinforcing its dominant market share and driving continued growth.

Moreover, Wall Street analysts remain bullish about this AI chipmaker’s prospects. TD Cowen analyst Matthew Ramsay increased his price target on NVDA stock from $140 to $165, while maintaining the Buy rating. “One thing remains the same: fundamental strength at Nvidia,” Ramsay said in a client note. “In fact, our checks continue to point to upside in data center (sales) as demand for Hopper/Blackwell-based AI systems continues to exceed supply.”

“Overall we see a product roadmap indicating a relentless pace of innovation across all aspects of the AI compute stack,” Ramsay added.

Meanwhile, KeyBanc Capital Markets analyst John Vinh reiterated his Overweight rating on NVIDIA stock with a price target of $180. “We expect Nvidia to deliver higher results and higher guidance” with its second-quarter 2025 report, Vinh said in a client note. He added solid demand for generative AI will drive the upside.

As AI applications expand across various key industries, NVIDIA’s continuous strategic innovations and product developments, such as the Blackwell GPU and NVIDIA Inference Microservices, ensure the company remains at the forefront of technological advancement. With a market cap nearing $4 trillion and a solid financial outlook, NVIDIA is well-poised to deliver substantial returns for investors, solidifying its standing as a leader in the AI and GPU technology sectors.

Why Long-Term Investors Should Eye TSLA's Robotaxi Potential

Posted on by The INO.com Team

Tesla, Inc. (TSLA) is set to release its second-quarter delivery update in early July, which is expected to show a decline for the second straight quarter. Analysts have adjusted their estimates for TSLA deliveries downward due to concerns over consumer demand and intense competition in China. In January, the company cautioned that delivery growth in 2024 would be “notably lower” as the impact of months-long price cuts diminishes.

According to an average estimate derived from forecasts by 12 analysts polled by LSEG, the EV maker is expected to deliver 438,019 vehicles for the April-June period. Seven of these analysts have slashed their expectations in the past three months.

Further, Barclays analyst Dan Levy revised his deliveries forecast to 415,000 vehicles, marking an 11% year-over-year drop. He stated that “a soft delivery result could turn attention back to the currently challenging fundamental environment for Tesla.” Meanwhile, RBC Capital Markets and UBS have set their delivery estimates at 410,000 and 420,000 vehicles, respectively.

For comparison, Tesla delivered 386,810 vehicles in the first quarter of 2024 and 466,140 vehicles in the second quarter of 2023, with its highest deliveries tally in the fourth quarter of the previous year at 484,507 units.

Despite the anticipated dip in quarterly deliveries, many analysts suggest that investor focus is shifting from quarterly deliveries to TSLA’s long-term projects, particularly the highly anticipated Robotaxi event scheduled later this summer.

High-Profile Robotaxi Event

CEO Elon Musk officially announced on X that the company will unveil its long-promised Robotaxi on August 8, 2024. The upcoming autonomous vehicle will be built on Tesla’s next-generation vehicle platform. Musk has long hinted at the possibility of a Tesla Robotaxi, even showcasing a fully covered vehicle during a 2023 event unveiling the company's third Master Plan.

Musk previously stated that Tesla will eventually produce a car without human control. He further mentioned that Tesla vehicles equipped with Full Self-Driving Capability will, through software updates, continuously improve their driving skills. He also emphasized that Tesla owners could generate income from their autonomous cars by sending them to pick up and drop off passengers.

That would be a part of the “Tesla Network,” as described in Musk’s Master Plan Part Deux. “You will also be able to add your car to the Tesla shared fleet just by tapping a button on the Tesla phone app," he added, “and have it generate income for you while you’re at work or on vacation, significantly offsetting and at times potentially exceeding the monthly loan or lease cost.”

Several years later, Musk’s vision expanded even further. In 2019, he declared, "By the middle of next year, we'll have over a million Tesla cars on the road with Full Self-Driving hardware." He also claimed that Tesla’s Full Self-Driving (FSD) feature would be so dependable that drivers could “go to sleep.” However, it should be noted that Teslas equipped with FSD software are not fully autonomous, and drivers should not sleep while using them.

While Musk’s promises may not always align perfectly with reality, the success of Autopilot and FSD proves that he remains at the forefront of a societal shift from human-powered vehicles to those piloted by AI.

TSLA’s stock has witnessed a continuous downturn, with a decline of nearly 15% year-to-date and more than 25% over the past year. However, the stock has surged around 16% over the past month as investors increasingly focus on the upcoming Robotaxi event.

While delivery data is crucial for an EV company, investors are looking beyond that. Ben Kallo, an analyst at Robert W. Baird, noted, “Compared to Q124 when investor attention was intensely focused on near-term delivery estimates being too high, we see a growing number of investors shifting their outlook to the Robotaxi event on August 8 and the opportunity related to FSD.”

Ben Kallo anticipates that investor attention will remain toward the long term until the Robotaxi launch, which could include details on low-cost, next-gen vehicles. Meanwhile, Wedbush Securities analyst Dan Ives doesn’t anticipate significant fireworks for the June quarter but believes the 8/8 Robotaxi debut will be a substantial catalyst for TSLA.

UBS, however, is more skeptical about the Robotaxi event being an immediate catalyst for TSLA’s stock price. Nonetheless, the firm acknowledges that the EV maker has made significant technical progress in its Robotaxi and Optimus plans. And it is more likely than most companies to capitalize on AI in the physical world, with long-term benefits for its financial model.

Potential Risks and Challenges

While the upcoming Robotaxi event holds promise, it also has inherent risks and challenges. Autonomous driving technology faces stringent regulatory scrutiny. Tesla must navigate complex legal landscapes to deploy its Robotaxi fleet, which could delay implementation and affect timelines.

TSLA must continue to invest heavily in research and development (R&D) to ensure the reliability and safety of its autonomous vehicles. Critics argue that Musk exaggerates the capabilities of the technology, often with fatal consequences. There have been hundreds of crashes involving Tesla vehicles using FSD and Autopilot, resulting in dozens of deaths. The EV giant currently faces several wrongful death lawsuits.

While the Robotaxi initiative has long-term potential, it requires substantial upfront investment. The financial burden of developing and deploying autonomous vehicles could impact Tesla’s short-term profitability.

Bottom Line

TSLA is scheduled to release its second-quarter deliveries report this week, with analysts expecting to show a decline for the second consecutive quarter amid weak demand due to a lack of affordable new models and stiff competition in China. The deliveries report will be released just a few weeks before the company’s second-quarter earnings release.

Street expects Tesla’s revenue for the second quarter (ended June 2024) to decrease 4.2% year-over-year to $23.88 billion. The consensus EPS estimate of $0.58 for the same period indicates a decline of 35.9% year-over-year.

Despite the expected drop in deliveries and weak quarterly earnings, several market experts suggest that investor focus is shifting to Tesla’s long-term projects, particularly the high-profile Robotaxi event set for August this year. As the EV maker navigates the challenges and opportunities ahead, the Robotaxi initiative is a pivotal development that could redefine its future trajectory.

While short-term concerns persist, including weak consumer demand, regulatory hurdles, and ongoing legal challenges, long-term investors increasingly focus on Tesla’s ambitious autonomous driving vision. The event is poised to showcase the company’s technological advancements and could serve as a catalyst for renewed investor confidence.

Why Nvidia’s Stock Split Could Drive Further Market Gains

Posted on by The INO.com Team

NVIDIA Corporation (NVDA) shares topped a record high of $1000 in a post-earnings rally. Last week, the company reported fiscal 2025 first-quarter results that beat analyst expectations for revenue and earnings, reinforcing investor confidence in the AI-driven boom in chip demand. Moreover, the stock has surged nearly 120% over the past six months and more than 245% over the past year.

Meanwhile, the chipmaker announced a 10-for-1 forward stock split of NVIDIA’s issued common stock, making stock ownership more accessible to employees and investors.

Let's delve deeper into how NVIDIA’s stock split decision could attract more investors and propel future gains.

The AI Chip Leader

NVDA’s prowess in AI and semiconductor technology has been nothing short of remarkable. Its GPUs (Graphics Processing Units) have become synonymous with cutting-edge AI applications, from powering self-driving cars and training and deploying LLMs to revolutionizing healthcare diagnostics and e-commerce recommendation systems.

Amid a rapidly evolving technological landscape, NVIDIA has consistently remained at the forefront, driving innovation and redefining industry standards. Led by Nvidia, the U.S. dominates the generative AI tech market. ChatGPT’s launch in November 2022 played a pivotal role in catalyzing the “AI boom.”

NVDA holds a market share of about 92% in the data center GPU market for generative AI applications. The company’s chips are sought after by several tech giants for their diverse applications and high performance, including Amazon (AMZN), Meta Platforms, Inc. (META), Microsoft Corporation (MSFT), Alphabet Inc. (GOOGL), and Tesla, Inc. (TSLA).

Nvidia surpassed analyst estimates for revenue and earnings in the first quarter of fiscal 2025, driven by robust demand for its AI chips. In the first quarter that ended April 28, 2024, NVIDIA’s revenue rose 262% year-over-year to $26.04 billion. That topped analysts’ revenue expectations of $24.59 billion. The company reported a record revenue from its Data Center segment of $22.60 billion, up 427% from the prior year’s quarter.

“Our data center growth was fueled by strong and accelerating demand for generative AI training and inference on the Hopper platform. Beyond cloud service providers, generative AI has expanded to consumer internet companies, and enterprise, sovereign AI, automotive and healthcare customers, creating multiple multibillion-dollar vertical markets,” said Jensen Huang, founder and CEO of NVDA.

“We are poised for our next wave of growth. The Blackwell platform is in full production and forms the foundation for trillion-parameter-scale generative AI,” Huang added. 

NVDA’s non-GAAP gross profit grew 328.2% from the year-ago value to $20.56 billion. The company’s non-GAAP operating income was $18.06 billion, an increase of 491.7% from the prior year’s quarter. Its non-GAAP net income rose 461.7% year-over-year to $15.24 billion.

Furthermore, the chipmaker reported non-GAAP EPS of $6.12, compared to the consensus estimate of $5.58, and up 461.5% year-over-year.

Nvidia’s Stock Split: A Strategic Move

Alongside an outstanding fiscal 2025 first-quarter earnings, NVDA announced a 10-for-1 stock split of its issued common stock. Nvidia’s decision to split its stock aligns with a broader trend among tech giants to make their shares more appealing to a wider range of investors, particularly retail investors. The chipmaker aims to democratize ownership and attract a vast investor base by breaking down the barrier of high share prices.

As more individual investors gain access to Nvidia’s shares post-stock split, we could see heightened trading activity and increased demand, potentially exerting upward pressure on its share prices. This strategic move reflects the confidence of NVIDIA’s management in its future growth trajectory and underscores its commitment to inclusivity in the investment landscape.

Bank of America analysts, led by Jared Woodward, head of the bank’s research investment committee, described the share split as “another large-cap tech pursuing shareholder-friendly policies” in a note to clients.

NVIDIA marks the fourth Magnificent Seven big tech companies to announce a stock split since 2022, following Google, Amazon, and Tesla’s efforts to make shares more accessible, according to Woodward and his team.

In recent years, as the share prices of several Big Tech companies surged past the $500 mark, it has become challenging for retail investors to buy shares. Consequently, these companies have been exploring ways to simplify the process for nonprofessional investors to buy in. BofA added, “Big Tech is going bite-sized” to lure retail investors, which might signal more market-beating returns.

Historical Data Suggests That Stock Splits Indicate a Bullish Outlook

Examining historical data on stock splits reveals a generally positive picture. While immediate post-split gains aren’t guaranteed, companies like Apple Inc. (AAPL) and Google have witnessed substantial appreciation in their share prices following splits. AAPL’s 4-for-1 stock split, which took effect in August 2020, primarily influenced investor sentiment and trading dynamics.

Following the split, Apple’s stock continued its upward trajectory, driven by solid performance in its core businesses, including iPhone sales, services revenue, and wearables. Throughout the latter half of 2020 and into 2021, its share price experienced significant appreciation, reaching new all-time highs.

Given NVIDIA’s robust fundamentals and leadership in AI and semiconductor technology, there’s reason to believe that its recent stock split could lead to similar outcomes.

BofA’s sell-side analysts have consistently been bullish on Nvidia shares, and following the first-quarter earnings release, they raised their lofty 12-month price target for the chip giant from $1,100 to $1,320. If the outlook proves accurate, Nvidia shares could surge by another 26%, and the stock split could support that bullish move, as per Bank of America’s reading of history.

“Splits have boosted returns in every decade, including the early 2000s when the S&P 500 struggled,” noted Woodard and his team. BofA’s research indicates that stocks have delivered 25% total returns within the 12 months following a stock split historically, compared to the S&P 500’s 12%.

Further, the bank highlighted that stock splits often ignite bullish runs, even in stocks that have been underperforming. For example, both Advanced Micro Devices, Inc. (AMD) and Valero Energy Corporation (VLO) experienced significant share price increases after announcing stock splits despite their prior poor performance. According to analysts, “Since gains are more common and larger than losses on average, splits appear to introduce upside potential into markets.”

However, it's essential to heed the standard caveat the Securities and Exchange Commission (SEC) provided: “Past performance is not indicative of future results.” In line, Bank of America emphasized that “outperformance is no guarantee” after a stock split. Companies still witness negative returns 30% of the time following a split, with an average decline of 22% over the subsequent 12 months.

The analysts noted, “While splits could be an indication of strong momentum, companies can struggle in a challenging macro environment.” They pointed to companies like Amazon, Google, and Tesla that faced difficulties in the 12 months following their stock splits in 2022 due to a high interest-rate environment.

Bottom Line

NVDA has a significant role as a global leader in AI and semiconductor technology, with its GPUs driving innovations across numerous industries, such as tech, automobile, healthcare, and e-commerce. Nvidia’s fiscal 2025 first-quarter results suggest that demand for its AI chips remains robust.

Statista projects the global generative AI market to reach $36.06 billion in 2024. This year, the U.S. is expected to maintain its position as the leader in AI market share, with a total of $11.66 billion. Further, the market is estimated to grow at a CAGR of 46.5%, resulting in a market volume of $356.10 billion by 2030. The AI market’s bright outlook should bode well for NVDA.

The company also recently made headlines with its announcement to undergo a 10-for-1 stock split. While stock splits generally do not change the fundamental value of a company, they make its shares more accessible and attractive to retail investors. So, the recent stock split could significantly increase retail participation, driving heightened trading activity and potentially exerting upward pressure on Nvidia’s share prices.

Historically, stock splits generally indicate a positive impact on stock performance. Companies like AAPL, GOOGL, and AMD experienced substantial price appreciation after stock splits, with enhanced accessibility to retail investors driving higher demand and liquidity.

However, it is crucial to acknowledge that past performance is not indicative of future results. While stock splits can signal strong price momentum, they do not guarantee outperformance.

In conclusion, Nvidia’s stock split will likely attract more retail investors, potentially boosting increased trading activity and stock price appreciation. Coupled with the company’s strong position in the AI and semiconductor markets, the stock split could facilitate further growth, aligning with historical trends of positive post-split performance.