Nvidia Soars, Broadcom Splits: Key Shifts in Tech Stocks

This week’s trading opened with some key shifts in the tech sector. Despite drops observed on the Dow Jones (USA 30), various factors are continuing to push investor darling Nvidia’s value up, and Broadcom may be becoming more attractive to some traders. Let’s take a closer look:

Nvidia Continues Its Climb

Since the announcement of its stock split on May 22nd, Nvidia’s share value has jumped by over 38%, despite a fall of 0.7% on June 17th over the course of the trading day. Despite this slight downturn Monday, many analysts still see Nvidia shares as being far from resistance levels.

With Nvidia (NVDA) seemingly continuing to hold its place as an industry leader, its success has led to a strategy shift for one key ETF. The Technology Select Sector SPDR Fund (XLK) is rebalancing its portfolio, necessitating the purchase of over $10 billion worth of Nvidia shares while dramatically reducing Apple’s (AAPL) weighting.

The index that XLK tracks will soon rebalance based on adjusted market cap values from the close prices recorded on Friday, June 15th. These new relative weightings will position Microsoft (MSFT) as the top stock, followed by Nvidia and Apple respectively.

Without diversification caps, all three stocks would each hold over 20% of the index. However, index rules limit the cumulative weight of stocks with at least a 5% share. Consequently, Microsoft and Nvidia will each have a weight of around 21%, while Apple's weight will drop sharply to about 4.5%. Previously, Microsoft and Apple each held about 22%, while Nvidia was at just 6% overall.

With approximately $71 billion in assets under management, a shift of 15% equates to over $10 billion. This rebalance highlights how passive index funds can experience significant changes, especially in narrowly focused markets.

The rebalance, based on the Technology Select Sector Index from S&P Dow Jones Indices, takes into account free-float market capitalization, which adjusts for large shareholders unlikely to trade regularly, like Berkshire Hathaway’s (BRK.B) stake in Apple. This adjustment reduces Apple’s effective market cap in the index. Furthermore, the rebalance will be effective for one quarter, regardless of any performance changes by Apple or Nvidia before the official date. With Nvidia's continued market success leading to strategy shifts in adjacent sectors, it is hard to predict how these various market forces will play out in the months ahead. (Source: CNBC)

Broadcom to Follow in Nvidia’s Footsteps?

With Nvidia’s stock split having come off so successfully so far, it may have come as no surprise to savvy investors when Broadcom announced its own 10-for-1 split on June 12th. 

Broadcom (AVGO) surpassed predictions when it released Q2 results to the public on June 12th. The company reported revenues of $12 billion, beating forecasts by four percent. Additionally, Broadcom's statutory earnings per share (EPS) figure came in at $4.42, more than 10% higher than estimates. 

Following the recent earnings report, many analysts have updated projections for the full year, and foresee Broadcom's revenue figure reaching above $50 billion in 2024. However, EPS is expected to decrease by 11% to $19.64 during the same period. Previously, analysts had predicted revenues of $50.3 billion and EPS of $19.15 for 2024. These forecasts could be the proximate reason for Broadcom's share price having risen by 27% over the past week.

Analysts expect Broadcom's growth to accelerate, with a projected annual growth rate of 45% through the end of this year. This is significantly higher than the company's historical growth rate of 13% per year over the past five years. In contrast, other companies in a similar industry are forecasted to grow their revenue at 18% per year. This indicates that Broadcom is expected to outpace its industry peers in terms of growth.

In the wake of these positive results, Broadcom's executive suite announced a 10-for-1 stock split after reporting its fiscal second-quarter earnings on June 12. This split is scheduled to take effect on July 15. Trading at over $1,837 per share as of market close on Monday, June 17th, Broadcom's stock price exceeds that of Nvidia before its split, making it one of the highest-priced stocks on the market. Management stated that the stock split aims to "make ownership of Broadcom stock more accessible to investors and employees."

The expected stock split may have contributed to Broadcom's nearly 5.5% jump in share value over the course of the trading day yesterday, but traders and investors alike will have to wait and see whether this momentum can be maintained into July and beyond.

In Conclusion

All in all, while the specific shifts among Big Tech firms and on the markets overall may have been difficult to predict, the fact that the markets are always in movement is well-known. How things will play out against the backdrop of macroeconomic and geopolitical events across the globe throughout the rest of the year is as yet opaque.