3 Brilliant Reasons to Buy Nvidia Stock Before Its Stock Split | The Motley Fool (2024)

The last time Nvidia announced a split, the stock ran up 20% in two months.

Nvidia (NVDA 2.34%) last split its stock in 2021, a 4-for-1 split to reduce its $600 share price to around $150. Now, due to the company's success in the past few years, management has decided it needs another one.

During its last earnings release, Nvidia announced a 10-for-1 stock split that will occur on June 10, reducing its $1,000 stock price to $100 per share.

Many people (including myself) saw this split coming. It will affect some investors who don't have access to fractional shares. In the past, stock-split announcements caused massive run-ups in the weeks leading up to the split. Last time, Nvidia increased by 20% between the split announcement and the effective date.

If you're looking to buy Nvidia stock before the split, I have three good reasons why it's a good idea.

1. Data center revenue growth isn't slowing down

Nvidia's primary products are graphics processing units (GPUs), which handle intense computing workloads. Because GPUs process many calculations in parallel, they are great choices for complex tasks like training artificial intelligence (AI) models.

AI demand has been unprecedented over the past year, driving the stock to new heights. Nvidia recognizes revenue from GPUs used in AI in its data center division, which grew revenue by an astounding 427% year over year in the first quarter of fiscal 2025 (ending April 28).

While that's impressive, investors really wanted to see the quarter-over-quarter growth rate -- whether AI demand is growing or shrinking from one quarter to the next. And with revenue rising 23% from the fourth quarter's figure, it's clear that the demand for AI computing power is still growing.

Nvidia doesn't give segment-specific guidance, but second-quarter revenue is expected to be about $28 billion, indicating 107% year-over-year growth and an 8% quarter-over-quarter increase. This appears to be a slowdown, but Nvidia is starting to come up against more difficult comparisons. However, it consistently beat its guidance -- the first-quarter goal was $24 billion while the actual figure was $26 billion.

Nvidia's business isn't slowing down. And it likely won't. According to CEO Jensen Huang, "The next industrial revolution has begun -- companies and countries are partnering with NVIDIA to shift the trillion-dollar traditional data centers to accelerated computing and build a new type of data center -- AI factories -- to produce a new commodity: artificial intelligence."

2. The stock isn't as expensive as you might think

Part of the reason many have avoided buying the stock despite its success is its valuation. Before announcing first-quarter results, Nvidia traded at 35 times forward earnings. That's cheaper than Microsoft, which trades at 36 times forward earnings, yet Nvidia is growing more rapidly.

3 Brilliant Reasons to Buy Nvidia Stock Before Its Stock Split | The Motley Fool (1)

NVDA PE ratio (forward); data by YCharts. PE = price to earnings.

When a company is transforming an industry like Nvidia is, it's hard to value a stock because of so many unknowns. With the transformation that AI is bringing and the massive amount of infrastructure needed to execute that change, Nvidia will continue to succeed, and the stock's valuation is a less important factor.

3. Nvidia's dividend is growing

Another announcement Nvidia buried in its earnings release was a 150% dividend increase. Before the bump, it paid shareholders $0.04 per share in a quarterly dividend, equating to a 0.016% yield. That essentially made the dividend a nonfactor in owning the stock.

With the increase and the stock split, Nvidia will now pay investors a $0.01 per share quarterly dividend, for a 0.04% yield. That's still not anything impressive, but it's the foundation for a much larger payment.

Many investments are being made to produce the most powerful GPU possible right now. Eventually, this demand will decrease, and Nvidia can increase its dividend to a meaningful amount when it diverts its cash flows to return capital to shareholders.

For now, management sees more value in reinvesting its cash flows into the business rather than paying dividends. And so far, it has been right.

None of those reasons has anything to do with the stock split itself, but that's on purpose. Stock splits are mostly cosmetic actions and only have consequences if investors cannot access fractional shares or trade options.

There are far better reasons to buy Nvidia stock than a split announcement. If you buy now and the stock sees a huge rise due to the announcement, you'll benefit in the short term. But the three reasons I discussed above will be more impactful over the long term.

Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

3 Brilliant Reasons to Buy Nvidia Stock Before Its Stock Split | The Motley Fool (2024)

FAQs

Should I buy Nvidia before or after stock split? ›

Trading at a lower price

First, as mentioned, a stock split lowers the price of each share. But this sort of operation doesn't change the overall market value of the company or of your holding if you already own the stock.

Will NVDA go up after split? ›

Nvidia just delighted investors with another strong earnings report and a stock split. Stock splits don't change the fundamentals of a business, but are historically correlated with outperformance. Nvidia shares have jumped as much as 22% since the stock split announcement.

Should I still buy Nvidia stock? ›

Despite its stock being up over 170% in the past year, the company's consistent performance and significant revenue increases justify its current price levels. The company's performance is not just hype from the AI industry; it is backed by substantial revenue increases and improving margins.

Is Nvidia going to split in 2024? ›

Nvidia ($NVDA) stock will undergo its sixth stock split with shares trading at one-tenth the price starting June 10, 2024. Before the Q1 2024 earnings call on May 22, 2024 when the split was announced, NVDA closed at $949.50. Since, the stock has reached all-time highs, breaching the $1,150 mark.

Is it better to buy before or after a stock split? ›

The short answer is it doesn't matter, and here's why. As mentioned earlier, a stock split doesn't change the value of the company or the value of an investor's holding. If you buy one share today or 10 shares after the split, you'll be investing the same amount of cash.

Do stocks usually go up before a split? ›

Of course, some of that outperformance may be because companies that tend to undergo splits usually do so only after a run of success where their stock prices have climbed strongly. And a stock split doesn't guarantee an ensuing rise in price.

How high will NVDA go? ›

NVDA Stock 12 Month Forecast

Based on 40 Wall Street analysts offering 12 month price targets for Nvidia in the last 3 months. The average price target is $1,202.71 with a high forecast of $1,500.00 and a low forecast of $870.00. The average price target represents a 4.58% change from the last price of $1,150.00.

What is the price target for NVDA in 5 years? ›

In five years, NVIDIA's stock is expected to be worth at least $3,000. Some analysts believe it could be worth significantly more, depending on the company's performance in emerging markets like AI, autonomous driving, and the Internet of Things (IoT).

What price was Nvidia stock when it split? ›

Nvidia stock closed trading Wednesday at $1,148.25 per share. It would be valued at $114.82 per share after the split.

Is Nvidia a safe long term investment? ›

Nvidia is in outstanding financial health. As of January 2024, the company held $26.0 billion in cash and investments, compared with $9.7 billion in short-term and long-term debt. Read more about Nvidia's financial strength.

Is it too late to buy Nvidia? ›

That's not surprising considering how rapidly Nvidia's data center business is forecast to grow in 2025. Investors, therefore, can still consider buying more shares of Nvidia as the booming demand for AI chips and the company's dominant position in this space could send this AI stock even higher.

What is the fair value of Nvidia stock? ›

Valuation
MetricNVDAQCOM
Price/Earnings (Normalized)61.3922.38
Price/Book Value55.319.36
Price/Sales34.546.34
Price/Cash Flow62.1822.54

Will Nvidia go up after split? ›

While the split will increase the number of outstanding shares in circulation, it will not change the company's overall value or affect Morningstar's view of its stock.

Is Nvidia going to rebound? ›

Nvidia Stock

NVDA on Friday leapt 6.2% to 877.35 as it rebounded back above its 50-day moving average. The move put Nvidia (NVDA) just above a trendline, offering a potential early entry. The pattern has an official buy point of 974.

What is the Nvidia forecast for 2025? ›

NVIDIA's outlook for the second quarter of fiscal 2025 is as follows: Revenue is expected to be $28.0 billion, plus or minus 2%. GAAP and non-GAAP gross margins are expected to be 74.8% and 75.5%, respectively, plus or minus 50 basis points. For the full year, gross margins are expected to be in the mid-70% range.

Do stocks do better after a split? ›

“Historically, stocks have notched 25% total returns in the 12 months after a split is announced, compared to 12% for the broad index,” according to the BofA Global Research's research investment committee.

Is your portfolio worth more right after a stock split? ›

While the number of shares owned changes after a stock split, the split itself does not change your investment value. For example, suppose you own 100 shares of a company trading at $200 per share, for a total value of $20,000.

Do I get more shares after stock split? ›

A stock split effectively splits the shareholder "pie" into more pieces. For example, if you had 10 shares worth $10 each before a 2-for-1 split, you'd have 20 shares worth $5 each afterwards. However, the total value of stock you own would remain the same at $100.

How much was Nvidia stock before split? ›

That means Nvidia shareholders will receive nine additional shares for each share they owned prior to the split, which will cut the value of each share to a tenth of its prior value. The split will trim Nvidia's share price from its roughly $1,140 share price Monday to $114.

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