Nvidia Announces a 10-for-1 Stock Split. Here's What Investors Need to Know. | The Motley Fool (2024)

This marks the largest stock split to date for the chipmaker.

Recent developments in the field of artificial intelligence (AI) have captured the public imagination over the past year or so. One of the byproducts of this trend has been the surging stock prices of companies at the forefront of this paradigm shift in technology. Nowhere is this more apparent than with chipmaker Nvidia (NVDA -0.46%), whose graphics processing units (GPUs) have become the gold standard for AI.

The company's consistent execution and unrivaled business performance have fueled its meteoric ascent. Nvidia stock has gained 540% since early last year, driven by triple-digit revenue and profit growth resulting from surging demand for AI. Yet that's just the beginning. Since Nvidia's IPO in early 1999, the stock has soared from a split-adjusted price of $0.25 to more than $939, representing eye-popping gains of 375,500%.

On Wednesday, in conjunction with the release of the company's quarterly results, Nvidia announced plans to split its stock for the first time since July 2020. The stock has gained more than 800% in the nearly four years since, which is likely the catalyst for the split. This revelation is sparking a fresh wave of interest in an already well-followed stock. Let's review the mechanics of a stock split and what it means for investors.

The stock-split details

Nvidia announced that its board of directors had approved a 10-for-1 forward stock split. This will result from an amendment to the company's Restated Certificate of Incorporation, which Nvidia says "will result in a proportionate increase of the number of shares of authorized common stock."

As a result of this split, shareholders of record as of June 6, 2024, will receive nine additional shares of stock for each share they own after the market close on Friday, June 7. The stock is expected to begin trading on a split-adjusted basis on June 10.

Nvidia investors won't need to take any steps in order to receive the additional shares of stock. Brokerage firms and investment banks handle the particulars, with the adjustments being handled behind the scenes. The stock-split shares will simply appear in investor accounts with no further action necessary. The timing can vary from brokerage to brokerage, so investors shouldn't worry if the newly issued shares aren't there immediately on June 7, as it can take hours, or in some cases days, for the additional shares to make an appearance.

Adding numbers can provide context regarding how the stock-split process plays out. For each share of Nvidia stock a shareholder owns -- it's currently trading for roughly $950 per share (as of this writing) -- post-split, investors will hold 10 shares worth $95 each.

Is a stock split a good thing?

As the above example shows, the total value of ownership won't change based on the split alone; it's merely a different way of viewing the whole. Put another way, if you buy a pizza, it doesn't matter if you cut it into eight slices or 16 slices -- the total amount of pizza remains the same. By the same token, Nvidia stockholders will simply have a greater number of lower-priced shares.

There are those who believe that investor psychology will ultimately play a part, with excitement about the upcoming stock split driving up the share price. It's also been suggested that the lower share price can increase demand for those shares among retail investors. Indeed, management notes in the announcement that the purpose of the split is to "make stock ownership more accessible to employees and investors." While that's frequently the case, that kind of temporary euphoria historically subsides, leaving investors to focus on what matters -- the company's operational and financial performance -- which will ultimately drive the stock price higher or lower.

Is Nvidia stock a buy?

While the stock split alone isn't reason enough to buy Nvidia, there are plenty of reasons the semiconductor specialist is a buy. Investors need to look no further than the company's financial report for evidence to support that contention.

In its fiscal 2025 first quarter (ended April 28), Nvidia reported revenue that soared 262% year over year to a record $26 billion, marking an 18% quarter-over-quarter increase. This drove adjusted earnings per share (EPS) up 461% to $6.12.

For context, analysts' consensus estimates were calling for revenue of $24.65 billion and EPS of $5.59, so Nvidia sailed past expectations with ease.

If there was any doubt, robust demand for generative AI fueled record data center revenue of $22.6 billion, up 427% year over year and representing 87% of Nvidia's total sales.

Another important announcement for shareholders is that Nvidia increased its quarterly dividend by 150%, from $0.04 to $0.10 per share, or $0.01 on a post-split basis. The first increased dividend payment will be made on June 28. Even at the new, higher level, the yield will still be paltry, amounting to just four-tenths of 1%.

It's still very early in the AI revolution, which is even more reason to be optimistic. The worldwide AI market clocked in at $2.4 trillion in 2023 and is expected to rise to $30.1 trillion -- a compound annual growth rate of 32% -- by 2032, according to Expert Market Research. As the gold standard for GPUs used in AI, Nvidia is well positioned for future success.

Investors shouldn't buy shares for the pending stock split. However, Nvidia's long track record of consistently strong operating and financial results -- and blistering stock price gains -- show why it continues to be such a winning investment.

Some investors will balk at Nvidia's valuation, but you get what you pay for. Despite four consecutive quarters of triple-digit revenue and EPS growth, Nvidia stock is selling for 37 times forward earnings. That's a small price to pay for such robust growth.

That's why Nvidia stock is a buy.

Danny Vena has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.

Nvidia Announces a 10-for-1 Stock Split. Here's What Investors Need to Know. | The Motley Fool (2024)

FAQs

Nvidia Announces a 10-for-1 Stock Split. Here's What Investors Need to Know. | The Motley Fool? ›

The stock-split details

What will Nvidia's 10-for-1 stock split mean for investors? ›

Nvidia plans a "10-for-1" split, so shareholders will get nine new shares for every share they already own. The economic value of their holdings won't change, so they will still be entitled to the same overall dividend payouts, and still have the same voting rights.

What does a 10 to 1 share split mean? ›

Semiconductor firm Nvidia NVDA announced a 10-for-1 stock split along with its blowout first-quarter earnings results on Wednesday. The stock split means investors will receive nine additional shares for each one they already own.

Is NVDA a good stock to buy? ›

On a brighter note, Wall Street makes a brawny bull case for Nvidia stock. Analysts, as a group, give NVDA an elite rating of Strong Buy (with high conviction), according to data from S&P Global Market Intelligence.

What does Nvidia stock split mean? ›

That's because, alongside its blockbuster earnings report on Wednesday, the company announced plans to split its stock 10-for-1, meaning existing shareholders will receive 10 shares of Nvidia for every 1 they own at a price that is 10% of the market value.

Should you buy Nvidia before stock split? ›

All of this supports the idea of more growth ahead for Nvidia. Meanwhile, Nvidia shares trade for about 34 times forward earnings estimates, which looks very reasonable considering long-term prospects. That makes Nvidia a buy -- whether you make the move before or after the stock split.

How does a stock split work for investors? ›

Normally, a stock split will reduce the price per share of each share in proportion to the increase in shares. Using this example, a 2-1 split for a stock trading at $200 would halve the price to $100 and double the number of total shares outstanding.

Why did Nvidia stock split? ›

Nvidia said the split was "to make stock ownership more accessible to employees and investors." Another reason some companies might undergo a stock split is because the lower price could help get them added to an index like the Dow Jones Industrial Average (DJIA).

Why is Nvidia stock so high? ›

Nvidia shares have soared thanks to the accelerating demand for its graphics processors. These chips are essential to the training of complex AI models. Management expects revenue to more than triple in its fiscal 2025 first quarter.

Is a share split good or bad? ›

Is a stock split good or bad? Well, a stock split is neither inherently good nor bad. It increases the number of shares while decreasing the price per share proportionally, aiming to make the stock more accessible.

Will NVDA stock go up after split? ›

Nvidia shares could surge another 26% if the outlook proves prescient, and the stock split might help with that bullish move, according to Bank of America's reading of history. “Splits have boosted returns in every decade, including the early 2000s when the S&P 500 struggled,” Woodard and his team explained.

How much will NVDA be worth in 5 years? ›

Consensus estimates predict Nvidia's earnings will increase at an annual rate of just over 35% for the next five years. Based on the company's fiscal 2024 earnings of $12.96 per share, its bottom line could jump to $58.11 per share after five years, assuming it does increase at the predicted rate.

Is Nvidia a good long term stock? ›

NVDA boasts a Growth Style Score of A and VGM Score of B, and holds a Zacks Rank #2 (Buy) rating. Its bottom-line is projected to rise 84.7% year-over-year for 2025, while Wall Street anticipates its top line to improve by 74.1%.

What does a stock split mean does it affect the stock price? ›

A stock split is when a company divides and increases the number of shares available to buy and sell on an exchange. A stock split lowers its stock price but doesn't weaken its value to current shareholders. It increases the number of shares and might entice would-be buyers to make a purchase.

Does a stock split mean more dividends? ›

In general, dividends declared after a stock split will be reduced proportionately per share to account for the increase in shares outstanding, leaving total dividend payments unaffected. The dividend payout ratio of a company shows the percentage of net income, or earnings, paid out to shareholders in dividends.

How much was Nvidia stock when it split? ›

While fractional share investing is common at many online brokers, a lower share price often generates excitement and can put ownership within reach for many small retail investors. For example, a 10-1 stock split of Nvidia trading at $1,020 per share would bring the price down to $102 per share.

Are stock splits good for investors? ›

It's basically a draw, and the value of your investment won't change. However, investors generally react positively to stock splits, partly because these announcements signal that a company's board wants to attract investors by making the price more affordable and increasing the number of shares available.

Do stock splits affect the total number of shares you own as an investor? ›

A stock split increases the number of outstanding shares and therefore increases the liquidity of the shares. However, the total amount of the shares stays the same, since the split does not change the stock's valuation.

How many shares do you get when a stock splits? ›

Of course, as the term “split” implies, the share prices is divided by however many new shares are issued. Say you owned a $1,000 share of stock. After a 2-for-1 split, you'd own two $500 shares. A 10-for-1 split would result in 10 $100 shares.

What happens when a stock splits 1 to 4? ›

If the company had decided to do a 4-for-1 stock split, each owner of the share would have received three additional shares. The value of the new shares will be $25 each. Let's take a look at some of the major companies that have split their stock.

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