The discussion revolves around NVIDIA‘s (NASDAQ: NVDA) recent earnings announcement and its impact on the stock market. NVIDIA’s stock split announcement led to a significant rally, adding $525 billion to its market cap in less than a week’s time. This increase compares to the total value for companies like Tesla (NASDAQ: TSLA), Visa (NYSE: V), Walmart (NYSE: WMT), and Exxon (NYSE: XOM).

The conversation highlights that while stock splits do not fundamentally change the value of a company, they can indicate business confidence. The main drivers for NVIDIA’s impressive performance are the high demand for its current and next-generation chips, the anticipation of strong earnings growth, and its position at the forefront of the AI technology trend.

Why NVIDIA Is Rallying After Announcing Its Stock Split

Highlights of 24/7 Wall Street Analysts Eric Bleeker and Austin Smith’s discussion can be found below.

• NVIDIA announced a stock split on May 22 – which is an event we predicted months ago.  
• Its stock was up 9.3% the next day. But after closing the day after earnings at $1,037.99 per share, NVIDIA has kept rising. 
• As of the close on May 29th, it was at $1,148.25 per share. 
• That’s a remarkable 21% rise from pre-earnings. This means NVIDIA is now worth $525 billion more than pre-earnings. 
• That’s about the same value as the entire worth of
  • Tesla
  • Visa
  • Walmart
  • Exxon 
• All in four days! 
• Keeping going, here are some other stocks NVIDIA has added more value in four days than their entire worth:
  • ASML – which has a monopoly on the technology NVIDIA needs to make its chips 
  • Samsung – Which sells more smartphones than any company in the world 
  • And Costco – which is… Costco!
• The big question is what was so spectacular in NVIDIA’s earnings that caused this reaction… 
• Here’s my bet: Right now there are two key questions for Wall Street. 1.) What are NVIDIA’s earnings this year?
• And 2.) What are they next year?
• Is demand so high for their current chips (like the H100 line) that NVIDIA can keep growing while it gets ready to launch its next-generation Blackwell architecture?
• Wall Street is now up to $27 per EPS in the current year, which we believe is still too low. Nvidia is almost surely going to beat that number.
• And the number to watch now for next year is whether NVIDIA can hit $40 in earnings per share. 
• And that’s more or less the valuation you’re looking at for the company today. 
• NVIDIA trading for less than $1,200 per share divided by a 40 times sales estimate for next year is still less than 30X forward earnings. 
• Many will argue that NVIDIA is at a cyclical peak – and perhaps that will prove true in time. 
• But here’s the thing, AI sales are still growing today! 
• There seems to be no abatement in demand for NVIDIA’s chips.
• And the story stock of a generation growing after a long period of triple-digit growth for another projected 30% growth next year simply isn’t going to be trading for less than 30X earnings, especially in an environment where every other big tech company trades above those multiples. 
• So that’s the reason NVIDIA is trading so strongly after earnings. Because there’s a stock split that shows confidence from management, but every other metric remains up and to the right. Simply put, the expectations for NVIDIA’s next year continue to rise and as long as that’s happening, it’s not going to trade a significantly cheaper multiple than its big tech peers. 

 

Transcript:

Eric, NVIDIA’s earnings have become the must-watch event for any investor, whether you’re an AI investor or not.

They move the entire market.

So goes NVIDIA.

So goes the NASDAQ.

So goes NVIDIA.

So goes the Magnificent Seven.

It is the most magnetic stock in the market today.

I want to understand, why did NVIDIA rally so hard after the stock split announcement?

And just a reminder to investors, it doesn’t make sense to me because mathematically, they’re still buying the same company.

They’re just readjusting the share.

For those people who are unaware, when shares with companies split, let’s say, 10 ways, which is how NVIDIA split, the share price becomes 10% of what it used to be, but there’s now 10 times more shares outstanding.

So fundamentally, none of the valuation has changed.

Per share, they might be more affordable, but on a valuation basis, nothing has changed.

So why did NVIDIA rally after something that fundamentally doesn’t change the business?

What’s going on?

Yeah, that’s a great question.

We’re seeing this across the market right now.

Stocks that have been splitting in recent years have seen excellent performance afterwards.

One key reason is that it’s often a sign of confidence and it’s almost a perpetuating cycle where stocks rise after because it’s a sign of confidence and the market’s increasingly looking for more and more.

So let’s look at some of the details of exactly what’s happened.

NVIDIA announced their stock split on May 22nd, which we had predicted months ago.

It was up 9.3% the next day.

And even after closing that next day at $1,038, we’ll call it per share, NVIDIA has kept rising.

And if we go forward to the close of May 29th, it was at $1,148.25.

So Austin, that’s a remarkable 21% jump from pre-earnings.

I want to put in perspective what a 21% jump for NVIDIA at these sizes looks like.

They’ve added $525 billion in market cap since earnings.

So if we’re looking at that, you know, I’m sure you could throw out some companies here, but you know, Tesla, that’s almost as much as Tesla’s worth.

Visa, which is one of the most outstanding businesses on earth has 50% margin, similar to NVIDIA.

They’ve added Visa’s market cap.

Walmart, which sells more than $600 billion worth of products annually.

They’ve added a Walmart and Exxon, the famed oil company.

They’ve added the same market cap as Exxon.

You know, should we keep going? I could keep going.

We could Mastercard, United Health, ASML, which is another company that’s rallied to really incredible valuations, but people get the point.

I mean, you know, NVIDIA has added to its market cap in a single day the same value as some of the greatest, most profitable, most durable companies on earth.

It is truly remarkable when you put it against the side.

I mean, Exxon alone just blows me away.

I mean, this is one of the oldest companies that is in the S&P 500s.

I believe it is also one of the most profitable.

It’s one of the largest employers in the US, and NVIDIA added it in 24 hours to its market cap.

Absolutely stunning.

Yeah, and the big question here is what was so spectacular in NVIDIA’s earnings?

Because as you know, this can’t just be a stock split because that doesn’t fundamentally create value in itself.

And here’s my bet and what’s really driving this outsized reaction.

Right now, there are two key questions for Wall Street.

What are NVIDIA’s earnings this year?

And what are they going to be next year?

How much will this momentum continue forward?

How big can this cycle get?

Is demand so high for NVIDIA’s current generation of chips that they won’t be able to keep growing it as well into the next generation?

Are they going to keep going?

So right now Wall Street’s now up to $27 in EPS in the current year, which I believe is still too low.

I believe that will be going over $30.

We look ahead to the next year, the number is now, can NVIDIA hit $40 per share?

I believe that’s more or less what you’re looking at, how the market is valuing this company right now, because NVIDIA, if it’s trading for less than $1,200 per share, divide by that $40 in next year’s EPS, that’s still less than 30 times forward earnings for a company that might be at the forefront of a trend that, let’s face it, no one’s gotten a handle on how big it can be.

And many will argue NVIDIA right now is at a cyclical peak, I should say, and that may prove true.

But again, here’s the thing.

AI sales are still growing.

And until there seems to be an abatement in demand or NVIDIA doesn’t exceed expectations, I don’t think you can see this stock trade for a ratio of less than something like 30 times the next year’s earnings, especially in an environment where every other big tech company is trying out those same multiples.

So long story short, I believe that’s the reason NVIDIA is trading so strongly after earnings because it’s one more event that keeps raising the ante on how much they can earn next year.

And with them earning this amount next year, they’re not going to trade lower than their big tech peers.

Eric, I think this is such a wonderful point.

You know, so many people, myself included, are looking at the split announcement here as driving this growth when really what they should be looking at.

And we need to remember the markets are forward-looking.

They are going to be valuing NVIDIA based on what happens next year and the years after.

So the split, it might be a sign of business confidence, but people aren’t actually sending shares higher because of that announcement.

They’re looking for their forward-looking, which is what markets are, and they’re valuing NVIDIA as the most critical picks and shovel play for what might be the greatest technology we’ve ever seen.

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