After Nvidia Stock Split, Can It Reach $1,200 Again?

The market can’t get enough artificial intelligence (AI) Dear Nvidia (NASDAQ:NVDA). The semiconductor giant sits just shy of a $3 trillion valuation, making it the third-largest company in the world.

Nvidia is the leading supplier of AI chips. Its hardware powers the technology that many believe will be the next big thing. Since ChatGPT-3 first went public, Nvidia’s stock has risen nearly 700% and surpassed $1,200 per share last week.

The shares are now trading at around $130. What happened? No, the company’s shares did not collapse and lose 90% of their value. Instead, the massive price hike led the company to initiate a 10-1 stock split. Shareholders now own 10 times more shares than before the split, with each share worth a tenth of the price.

A split like this is more or less cosmetic; in itself, it doesn’t change the value of people’s investments. However, this is not without consequences. The title is now more accessible to small investors; $130 is a lot easier to digest than $1,200, a number that might have kept investors from snapping up a few shares.

It would not be the first time

Reaching $1,200 again would mean 10 times the current price. Nvidia has already managed to grow 10x over the past three years, but achieving it again would mean reaching a market cap of $30 trillion – a staggering number. It’s a different situation when you’re already the third largest company in the world, but it’s not unprecedented.

In 2010, Apple was the second largest company in the world. The company made headlines that year as it approached a market capitalization of $300 billion. Fast forward to 2022, and Apple has made headlines again, this time as the world’s largest company and the first to cross the $3 trillion mark. I bet $3 trillion seemed mind-boggling to many investors in 2010, but here we are.

Watch the market for clues

Let’s start by assuming that Nvidia’s growth will slow compared to the last three years. What is a more reasonable price? The market as a whole is a good place to start. Statista.com projects a compound annual growth rate (CAGR) of approximately 28.5% through 2030 for the overall AI market. If this growth rate continues, it would take about nine years for Nvidia’s stock to reach $1,200 again.

But before you get too excited, there are some pretty huge assumptions here. We assume that the projected CAGR will continue beyond 2030 and is not overinflated to begin with. Second, we assume that the market will value Nvidia the same relative to its earnings over time. This is not necessarily true. Just because a company increases earnings doesn’t mean its stock price will respond accordingly, but it’s a useful simplification for now.

The story continues

So if we make these assumptions, can Nvidia grow at the same rate as the overall market? I’m not sure this is likely for several reasons, competition being the main one.

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