Even Without a Stock Split, This Tech Winner Remains a Buy

Graphics processing unit maker Nvidia (NVDA) announced plans to make a 4-for-1 share split on Friday. That gave shares of the company a quick boost, as it marks the first share split in 14 years for the firm.

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  • While the lower share price doesn’t change the company’s market cap, it does make trading easier, particularly for retail investors. It’s fairly common to see companies split shares as they continue a long-term rally.

    While Nvidia’s conventional valuation is a big high right now, shares are still about 8 percent off their all-time highs. A share split may all the company to rise to a new all-time (albeit split-adjusted) high.

    While the semiconductor sector has been prone to shortages developing over the past few months, Nvidia is firing on all cylinders and showing high double-digit growth in both revenue and earnings.

    Action to take: Traders who buy shares now will soon have four times as many… albeit at one-fourth the price. Longer-term, the company’s growing dominance of the GPU sector points to a move higher, and the share split may help accelerate that process. Shares yield 0.64 percent, hardly a large yield, but reasonable for tech.

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  • For traders, the September $660 calls, going for about $32.00, look like a reasonable bet for shares to bounce higher. Traders should look for mid double-digit gains, and to take profits quickly. Any options trade now will also split in terms of quantity and strike price to reflect the change in shares.

     

    Disclosure: The author of this article has positions in the stock mentioned here, but may make additional trades on this company after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.