Over the past few months, investors have been wondering whether… Nvidia (Nasdaq: NVDA) A stock split will be triggered. This is after the technology giant’s stock has risen in recent years, reaching nearly $1,000. It actually reached $1,000 this week in the trading session after Nvidia’s earnings report and stock split announcement. After the split, the chip designer’s shares will trade at a much lower level.
But the move will not change Nvidia’s $2.3 trillion market value. Alternatively, a stock split involves issuing more shares to existing shareholders and this will result in more shares trading at a lower price; Existing shareholders will end up with the same dollar value of shares they had before the split. A lower price would make the stock more accessible to a wider range of investors, and Nvidia even said as part of its announcement that this was its motivation for making the move.
So, today, with Nvidia making the move many investors have been waiting for, is it time to buy shares?
Why do investors care about stock splits?
It’s important to note that it’s not a good idea to buy a stock just because a company has launched a split – it’s just a mechanical process. Stock split By itself it will not push the value of the stock higher or lower. Now you may be wondering, if that’s the case, why would investors care so much about whether a company will split its stock?
In many cases, this move indicates that the company is optimistic about its future and believes its stock has what it takes to take off again. Overall, the company has performed well from an earnings perspective in recent years, and that has led to the share price gains we’ve already seen. Now, by splitting its stock, the company is implying that these gains are far from over, and that the stock price may decline, it may rise again, and even eventually return to the pre-split level.
Now let’s consider Nvidia’s 10-for-1 stock split, effective June 7. This means that if you own one share of Nvidia today, you will own 10 shares after the split, but the value of your holdings will remain the same. And if you buy Nvidia stock after the split, if it was still trading at $1,000 before the split, it will drop to $100 per share after the split.
This maneuver will make it easier for investors who do not have access to it Fractional shares Or those who prefer to buy whole shares for investment. The $1,000 level represents a psychological barrier for some investors, who will automatically hesitate to buy even if the valuation is reasonable. Nvidia’s stock split will remove this hurdle and pave the way for them to enter this tech giant.
Nvidia’s five stock split
Nvidia is no stranger to stock splits, having completed five of them in the past 24 years. Every time Nvidia has announced a split, the stock price has been much lower than it is today, so I’m not too surprised that Nvidia decided to make this move now.
Let’s return to our question: Is it time to buy stocks? It is — but not because of Nvidia’s upcoming stock split. Nvidia shares rose after its previous stock splits, but this movement is due to increased company revenues and demand for its products.
And a look at Nvidia’s recent earnings report and the AGI market provides us with reason to be optimistic about the future. The company reported triple-digit growth in revenue and net income in the first quarter of fiscal 2025, with revenue reaching record levels. At the same time, gross profit margin is rising, expanding to more than 78%, so Nvidia is becoming more profitable.
The company says demand for its products and services is outstripping supply, and as Nvidia prepares to launch its new Blackwell architecture and its most powerful chip ever, it’s easy to imagine demand remaining strong. Especially considering the AI market outlook. Analysts expect the market to reach more than $1 trillion by the end of the decade. All of this supports the idea of more future growth for Nvidia.
Meanwhile, Nvidia shares are trading at about 34 times forward earnings estimates, which seems pretty reasonable given the long-term outlook. This makes Nvidia an option to buy — whether you make the move before or after the stock split.
Should you invest $1,000 in Nvidia now?
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Adria Cimino He has no position in any of the stocks mentioned. The Motley Fool has positions on and recommends Nvidia. The Motley Fool has Disclosure policy.
Nvidia just announced its stock split. Time to purchase? Originally published by The Motley Fool
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