Nvidia just announced a stock split. Is it time to buy?

Over the past few months, investors have been asking the following questions: nvidia (NVDA 2.57%) We will begin stock splits. This follows a surge in the tech giant’s stock price in recent years, reaching nearly $1,000. And it actually hit $1,000 during this week’s trading session following Nvidia’s earnings report and stock split announcement. After the split, the chip designer’s stock will trade at much lower levels.

But the move won’t change Nvidia’s $2.3 trillion market value. Instead, a stock split involves issuing more shares to current shareholders, which causes more shares to trade at a lower price. Current shareholders will have the same dollar value of shares as they had before the split. The price drop will make the stock accessible to more investors, which Nvidia said as part of its announcement was the motivation for the move.

So, with Nvidia taking the move many investors have been waiting for today, is now the time to buy stock?

Image source: Getty Images.

Why do investors care about stock splits?

It’s important to remember that it’s not a good idea to buy stock just because a company has started splitting. This is simply a mechanical operation. A stock split itself does not increase or decrease the value of the stock. So now you can ask a question. So why do investors care so much about whether a company will split its stock?

In many cases, these moves suggest that the company is optimistic about the future and believes its stock has the ability to take off again. In general, the company has performed well from a revenue standpoint in recent years, which has triggered a rally in its stock price, as we’ve already seen. Now, by splitting the stock, the company is hinting that these gains are far from over, and the stock’s low price could cause it to soar once again and eventually return to pre-split levels.

Now let’s consider Nvidia’s operations, which will be splitting their shares 10:1 starting June 7th. This means that if you own one share of Nvidia stock today, you will own 10 shares after the split, but the value of your holding will remain the same. . And if you buy Nvidia stock after the split and it’s still trading at $1,000 before the split, it drops to $100 per share after the split.

This strategy will make investing easier for investors who do not have access to fractional shares or who prefer to purchase whole shares. And the $1,000 mark represents a psychological barrier for some investors who are automatically hesitant to buy even if the valuation is reasonable. Nvidia’s stock split would remove this obstacle and pave the way for them to participate in the tech giant.

Nvidia’s 5 Stock Splits

Nvidia is no stranger to stock splits, having completed five stock splits over the past 24 years. And every time Nvidia announced a split, its stock price was significantly lower than it is now, so it’s not really surprising that Nvidia decided to make this move now.

Let’s go back to your question. Is now the time to buy stocks? But it’s not because of Nvidia’s upcoming stock split. Nvidia’s stock price has risen since past stock splits, but the move comes as the company’s profits and demand for its products increase.

NVDA data from YCharts

And just looking at Nvidia’s recent earnings report and the AI ​​market in general, we can see why we’re optimistic about the future. The company reported triple-digit growth in revenue and net income in the first quarter of fiscal 2025, with sales reaching record levels. At the same time, gross margins expanded to over 78%, making Nvidia increasingly profitable.

The company says demand for its products and services is outstripping supply, and it’s easy to imagine demand remaining strong as Nvidia prepares to launch its new Blackwell architecture and its most powerful chip ever. This is especially true considering the AI ​​market outlook. Analysts predict the market will reach more than $1 trillion within 10 years. All of this supports the idea of ​​more growth for Nvidia going forward.

Meanwhile, Nvidia is sharing a deal worth about 34 times future revenue estimates, which seems very reasonable considering its long-term outlook. You’d be buying Nvidia whether it was before or after the stock split.