Nvidia (NASDAQ:NVDA) experienced another surge in its stock price, reaching a new record high and briefly surpassing Amazon (NASDAQ:AMZN) in market capitalization. With a remarkable 46% increase year-to-date, Nvidia leads the S&P 500 Index ($SPX) as the top-performing stock in 2024, echoing its stellar performance from the previous year.
Last year, Nvidia dominated as the best-performing S&P 500 stock, boasting a 240% increase and becoming the first chip designer to hit a $1 trillion market cap. Now, in 2024, it has surpassed the $1.5 trillion milestone, prompting discussions about the possibility of reaching a $2 trillion market cap.
Despite this remarkable ascent, some, including valuation expert Ashwath Damodaran, caution that Nvidia’s stock may have surged too far. The question now arises: Can Nvidia sustain its upward trajectory in 2024, and will the company entertain the idea of a stock split amidst its astonishing rally?
Analyzing Nvidia’s Future Growth Potential
Wall Street’s consensus target price for Nvidia sits at $675.52, suggesting a potential plateau in the stock’s rise. However, the presence of a Street-high target price of $1,100 implies that there may still be room for further growth.
Analysts have consistently revised Nvidia’s target price upwards following the company’s impressive earnings reports, which have consistently exceeded expectations. As Nvidia prepares to announce its earnings later this month, there’s anticipation for further target price adjustments in response to its performance.
While it’s not unusual for stocks to trade above their target prices during periods of upward momentum, concerns about overvaluation are emerging within the market. Some investors fear that Nvidia’s reliance on the artificial intelligence (AI) sector might become unsustainable if the AI market experiences a downturn, or if competitors develop comparable chips.
Ashwath Damodaran, in particular, expresses skepticism about Nvidia’s valuation, labeling it as overpriced among the “Magnificent 7” group of stocks. Despite his preference for companies like Apple (NASDAQ:AAPL) and Tesla (NASDAQ:TSLA), Damodaran’s views on Nvidia diverge, suggesting potential concerns about its long-term sustainability.
The Debate Over a Stock Split
As discussions over Nvidia’s valuation continue, retail investors are now speculating about the possibility of a stock split. Given the significant rise in its stock price, reminiscent of its peak in July 2021 when it last split its shares, some believe a split could be on the horizon.
While a stock split doesn’t alter a company’s fundamentals, it often boosts positive sentiment and trading volumes. Consequently, the announcement of a stock split is typically met with optimism and can further propel a stock’s price upward.
Looking Ahead
As Nvidia’s stock continues its upward trajectory, it’s plausible that the company’s board will consider a stock split in response to growing speculation. While debates about Nvidia’s valuation persist, its long-term growth narrative remains compelling, making it an attractive option for investors seeking growth opportunities.
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