Nvidia’s 10-for-1 Stock Split Has Arrived. Here’s What Happens Next.

Jun 8, 2024

Nvidia (NASDAQ: NVDA) has become the poster child for the artificial intelligence (AI) revolution. The company supplies the graphics processing units (GPUs) that are critical components in AI systems, driving its stock price into the stratosphere. Since the advent of generative AI early last year, Nvidia’s revenue has soared 330%, while its net income surged 952%. This performance, in turn, has pushed its stock price up 488% (as of this writing).

As a result, the stock price currently sits above $1,100 per share, putting it out of reach of many everyday investors — but all that’s about to change. Nvidia’s long-awaited 10-for-1 stock split goes into effect after the market closes today.

Let’s review the details of this split and what investors can expect in the days and weeks to come.

An abstract image of computer circuitry spelling out the letters AI.

Image source: Getty Images.

A quick recap

When Nvidia announced the results of its fiscal 2025 first quarter (ended April 28), the company’s unprecedented winning streak continued. Revenue jumped 262% year over year to a record $26 billion, while earnings per share (EPS) rocketed 629% to $5.98. The results were led by record data center revenue, which includes AI chips, which climbed 427% to $22.6 billion. This stunning performance wasn’t a one-time thing but rather represented the fourth consecutive quarterly performance featuring triple-digit sales and profit gains, pushing its stock price north of $1,000.

Management announced a 10-for-1 stock split “to make stock ownership more accessible to employees and investors.” The split is scheduled to take place after the market close on Friday, June 7. For each share investors own, they will receive nine additional shares. The stock will begin trading on a split-adjusted basis when the market opens on Monday, June 10. For each share of Nvidia stock a shareholder owns — currently selling for roughly $1,100 per share (as of this writing) — post-split, investors will hold 10 shares worth $110 each, so the total value of the investment won’t change as a result of the split.

The celebrated “stock split bump”

While a stock split itself doesn’t fundamentally change anything about the underlying business, stock splits tend to generate a lot of excitement among investors — and for good reason. Data shows that in the year following a split, the stocks in question tend to outperform the broader market.

A study conducted by Bank of America Global Research revealed that in the 12 months following a stock split, companies that have undergone a split generated returns of 25.4%, on average, compared to gains of 11.9% for the S&P 500.

It’s important to note that the stronger stock price gains aren’t necessarily caused by the stock split itself, but rather by the strong business and operating performance that fueled the stock price increases in the first price, which ultimately led to the stock split.

The data suggests that post-split, Nvidia stock will likely continue to outperform the broader market.

What the future holds

For investors wondering what’s to come for Nvidia, the future looks bright. For the company’s upcoming fiscal second quarter, management is guiding for revenue of $28 billion, which would represent year-over-year growth of 107%, suggesting the company’s growth spurt will continue.

That isn’t surprising. The adoption of generative AI is expected to continue by leaps and bounds, adding between $2.6 trillion and $4.4 trillion to the economy in the coming years, according to global management consulting firm McKinsey & Company.

Much has been made about the potential for competition, which could encroach on Nvidia’s windfall. While that certainly bears watching, the company’s robust growth rate suggests that Nvidia remains the gold standard for AI processing. Until its rivals come up with a solution that can compete in terms of performance and cost, that’s unlikely to change anytime soon.

Finally, Nvidia’s meteoric rise has fueled a commensurate increase in its valuation. The stock is currently trading for 43 times forward earnings, considerably higher than a multiple of 27 for the S&P 500. While that might seem prohibitively expensive, its valuation should be considered in the context of Nvidia’s growth and future potential. Over the past 10 years, Nvidia stock has gained 24,380%, compared to 174% for the S&P 500. This helps illustrate why Nvidia is deserving of its otherwise hefty premium.

It also shows why Nvidia stock is a buy.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Danny Vena has positions in Nvidia. The Motley Fool has positions in and recommends Bank of America and Nvidia. The Motley Fool has a disclosure policy.

Nvidia’s 10-for-1 Stock Split Has Arrived. Here’s What Happens Next. was originally published by The Motley Fool

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