Why NVIDIA stock has become more attractive
Semiconductor company last week nvidia (NASDAQ:NVDA) received numerous price target upgrades from Wall Street analysts following a strong earnings report.
But the chipmaker’s stock price may soon change quite dramatically as it announces a 10-for-1 stock split. This means the entry price for one of the best-performing stocks on the market has become much cheaper.
1:10 stock split
NVIDIA has been an absolute powerhouse in recent years, with its AI-enabled graphics processing unit (GPU) chips fueling the AI boom. Over the past 12 months, NVIDIA stock has soared a whopping 186% to about $1,120 per share.
Just five years ago, NVIDIA was trading at $33 per share on May 28, 2019. Over the past five years, NVIDIA has posted average annual returns of 98% to reach its current stock price of $1,120.
Needless to say, investors who bought NVIDIA in 2019 were very pleased. If you bought 20 shares of NVIDIA stock at $33 per share in 2019, your initial investment of $660 would now be worth about $200,000. This includes a 4-for-1 stock split in 2021.
As NVIDIA stock has soared more and more recently, it may have become out of reach for many investors. This situation will soon change.
When enacting the recently announced 1-for-10 stock split, NVIDIA will lower its price per share by 10 times. This means that 1 share will convert to 10 shares when the market closes on June 6th. Nvidia stock.
Therefore, each NVIDIA shareholder on that date will automatically receive 9 additional shares as the stock price falls 10x. For example, if the stock price was $1,200 on June 6, each share would be worth $120 after the stock split.
An investor with 1 share of a stock priced at $1,200 will have 10 shares of the stock, and an investor with 20 shares of a stock priced at $1,200 will have 200 shares of the stock worth $120 each.
NVIDIA will begin trading at the new split price when the markets open on June 10th.
Why NVIDIA split stock
Stock Splits Don’t Change the Whole value However, lower prices make individual stocks more accessible to more investors. Currently, an investor who only has $1,000 to invest initially would not be able to buy a single share at the current price, so even if he could buy penny stocks, he would look elsewhere.
But at $120 per share or thereabouts, NVIDIA stock becomes a much more attractive proposition for investors looking to capitalize on the next phase of the company’s growth.
NVIDIA executives pointed this out in a recent earnings report, explaining that the split “makes stock ownership more accessible to employees and investors.” The chipmaker also raised its quarterly dividend by 150%, from 4 cents per share to 10 cents per share, although after the stock split the dividend will be 1 cent per share.
Should you buy NVIDIA stock?
The main question for investors is whether to buy NVIDIA stock before or after the split. It’s a personal decision, and you’re buying the same great company that is a dominant leader in its field with tremendous upside as AI computing is still in its infancy.
NVIDIA reported revenue of $26 billion in the fiscal first quarter, up 232% year-over-year, and net profit rose 628% to $14.9 billion. Nvidia’s second quarter sales are expected to reach approximately $28 billion.
That said, there’s never a bad time to buy a stock as good as NVIDIA, which has tremendous growth potential. However, it’s very common for stock prices to skyrocket after a split due to an influx of completely new investors, so it might be something to keep in mind.
NVIDIA also surged after its latest earnings report. Therefore, investors should keep the price-to-earnings ratio in mind when deciding when to buy or add to a position.
