Nvidia May Be an Exciting Stock, but Its 10-for-1 Stock Split — Like Most Stock Splits — Is a Nothing Burger

If you don't know much about Semiconductor giant Nvidia (Nasdaq: NVDA), it's worth learning, because the company has recently achieved great success in the field of artificial intelligence (AI). Nvidia is often in the news, most recently due to a 10-for-1 stock split, which has many investors excited.

But most stock splits — including this one — aren't as exciting as they might seem. Before we get to the stock split, let's agree that Nvidia, He is arousing. Its stock performance is definitely:

Data source: Morningstar.com, as of June 3, 2024.

Those are eye-catching numbers. A 50% annual return will increase your investment more than 437 times over 15 years! If you only owned Nvidia for the past five years, the value of your stake would have doubled each year, on average.

Nvidia stock's performance is exciting because the underlying business is exciting. Over the years, Nvidia has evolved from a company specializing in gaming chips to a company it now gets most of its revenue from Its data center technology. This is due to the increasing prevalence of artificial intelligence (AI), which requires more and more semiconductor firepower.

Check out some additional exciting numbers from Nvidia:

Data source: Morningstar.com.

In Nvidia's first quarter of fiscal 2025, revenue rose a staggering 262% year over year! Total revenue for the next 12 months is nearly $80 billion, as AI fuels data center growth. (In fact, AI may fuel further growth in Nvidia's gaming business.)

Nvidia's stock split isn't very exciting

Despite legitimate enthusiasm for Nvidia and its stock, the excitement over its 10-for-1 stock split (which occurred on June 7) is misplaced. Shares are up more than 20% as of June 3 since the company reported impressive first-quarter results and a stock split on May 22.

What is a stock split?

Stock splits increase the number of shares while proportionally decreasing the value of each share. A common split formula is 2-for-1, where you end up getting two shares for every share you owned before the split, and the stock price is cut in half. But let's see what happens with the Nvidia split.

Imagine you owned 10 shares of Nvidia before the split, at, say, $1,160 per share. The total value of your shares is $11,600. When the stock is split, you will end up with 100 shares. But the stock price would suddenly be a tenth of what it was — about $116 per share. Multiply 100 shares by the price of $116 and you get a total value of $11,600.

The story continues

Stock splits are mostly an accounting event, and for most investors, nothing significant. In some cases, like this one, a split can raise the stock price to a level that suits more investors. Before the split, with Nvidia shares topping $1,100, many people probably assumed they couldn't afford a single share.

What is a reverse stock split?

It's worth noting that reverse stock splits also exist, and are a bit more important, as they are usually carried out by struggling companies. A reverse split will support the stock's price, which could help it avoid being delisted from the stock exchange and could help it look less like a risky penny stock.

If Nvidia executes a 1-for-10 reverse split, your 10 shares would become one stock, worth about 10 times what your shares traded for before the split. Again, the total value does not change.

Should you buy Nvidia stock?

Stock splits aside, what most people are wondering about Nvidia is: Is it too late to buy stock now?

There is no one-size-fits-all answer to this question, and opinions often differ on the valuation of any stock. Many people see Nvidia stock as overvalued at recent levels, and that's fair. The recent price-to-sales ratio of 36, for example, is well above the five-year average of 19.

But it's also reasonable to see that a seemingly steep valuation isn't that outrageous given how quickly the business is growing. (Note that it has been viewed as overrated for years.)

So learn more about the company and crunch the numbers yourself. If you plan to buy and hold for many years, buying now may be a smart move. Even if there is a downturn in the near future, the company has a lot of growth potential in the long term. If you are risk averse, or fear volatility, look elsewhere.

Should you invest $1,000 in Nvidia now?

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Selena Maranjian He has positions at Nvidia. The Motley Fool has positions on and recommends Nvidia. The Motley Fool has Disclosure policy.

Nvidia may be an exciting stock, but its 10-for-1 stock split — like most stock splits — isn't great Originally published by The Motley Fool