NVIDIA Profit Surges 600%

AI chipmaker NVIDIA has reported record-breaking financial results for the first quarter of 2024, with the company’s revenue hitting $26bn – marking a 262% rise compared to this time last year.

The company has reported a net income of $14.8bn, which reflects a 21% increase from the previous quarter, as well as a 629% surge from a year ago.

What’s behind this surge? 

NVIDIA stated that this performance is primarily driven by the company’s data centre business, which achieved a record quarterly revenue of $22.6bn. This marks a 23% increase from the prior quarter with a rise of 427% year-over-year.

Consequently, the GAAP earnings per share for the quarter was $5.98.

“The next industrial revolution has begun — companies and countries are partnering with NVIDIA to shift the trillion-dollar traditional data centres to accelerated computing and build a new type of data centre — AI factories — to produce a new commodity: artificial intelligence,” said Jensen Huang, founder and CEO of NVIDIA.
 

Key Points

•    Chip giant Nvidia will now design new artificial intelligence (AI) chips every year instead of once every two years.

•    Shares surged past the $1,000 mark for the first time in extended trading.

•    The estimate for the quarter was of $24.65bn. Nvidia has managed to beat expectations and has reported a revenue of $26.04bn.

•    Earnings per share of $6.12 has also overcome the $5.59 estimate.

The results from the artificial intelligence chipmaker proved once again that the AI boom is still in place. Demand remains as robust as ever, according to CEO Jensen Huang.

As a result, U.S. stock futures pointed higher on Thursday, as investors digested yet another blowout quarterly earnings release from the company. 

•    S&P 500 futures contract gained 27 points aka 0.5%
•    Nasdaq 100 futures had inched up by 158 points aka 0.8%
•    Dow Futures had climbed by 30 points aka 0.1%

Now to complement this stellar growth, NVIDIA also announced a significant move: a 10-to-1 stock split. 

Why? This strategic decision would allow more investors to buy up stocks, which could potentially fuel the company’s upward momentum in the stock market even further.

10-to-1 Stock Split

On Wednesday May 22nd, Nvidia had announced plans to split its stock for the first time since July 2020.

The stock had gained more than 800% in the nearly four years since, which is most likely the catalyst for the split.

As a result of this split, shareholders of record as of June 6, 2024, will receive nine additional shares of stock for each share they own after the market close on Friday, June 7. 
The stock is expected to start trading on a split-adjusted basis on June 10.

Splitting stocks is a strategy used by companies to make it less expensive to buy individual shares. It does not alter a company’s financial fundamentals.

This will result from an amendment to the company’s Restated Certificate of Incorporation, which Nvidia says “will result in a proportionate increase of the number of shares of authorised common stock.”

With a 10-for-one split at that price, one share of Nvidia would cost $94.95, but an investor would need to purchase 10 shares to be able to maintain the same ownership stake in the company.

Nvidia investors won’t need to take any steps to be able to receive the additional shares of stock. The stock-split shares will simply appear in investors accounts with no further action necessary.

Adding numbers can provide a better context as to how the stock-split process plays out. For each share of Nvidia stock a shareholder owns – currently trading for roughly $950 per share – post-split, investors will hold 10 shares worth $95 each.
 

Is a stock split good or bad?

As the above example states, the total value of ownership is not going to change based on the split alone, it is merely a different way of viewing the whole. 

Now put another way: let’s say you buy a pizza, it does not matter whether you cut it into 8 or 16 slices – the total amount of pizza remains the same.

Similarly, Nvidia stockholders will simply have a greater number of lower-priced shares.

It is believed that the lower share price can increase demand for those shares among retail investors. Not only this, but there are also those who believe that investor psychology will be playing a major part, with excitement building upon the upcoming stock split driving the share price.