Nvidia (NASDAQ:NVDA) last split its shares in 2021, a 4-for-1 split to reduce its stock price from $600 to around $150. Now, due to the company’s success over the past few years, management has decided they need another one.
During its latest earnings release, Nvidia announced a 10-for-1 stock split that will take place on June 10, reducing its stock price from $1,000 to $100 per share.
A lot people (including myself) I saw this split coming. This will affect some investors who do not have access to fractional shares. In the past, stock split announcements caused massive rallies in the weeks leading up to the split. Last time, Nvidia was up 20% between the split announcement and the effective date.
If you’re considering buying Nvidia stock before the split, I have three good reasons why it’s a good idea.
1. Data Center Revenue Growth Is Not Slowing
Nvidia’s main products are graphics processing units (GPUs), which handle intense IT workloads. Since GPUs process many calculations in parallel, they are an excellent choice for complex tasks such as training artificial intelligence (AI) models.
Demand for AI has been unprecedented over the past year, pushing the stock to new highs. Nvidia recognizes revenue from GPUs used in AI in its data center division, which grew revenue 427% year over year in the first quarter of fiscal 2025 (ending April 28) .
While this is impressive, investors really wanted to know the quarter-over-quarter growth rate, whether demand for AI was increasing or decreasing quarter-over-quarter. And with revenue up 23% from the fourth quarter, it’s clear that demand for AI computing power continues to grow.
Nvidia doesn’t give segment-specific guidance, but second-quarter revenue is expected to be around $28 billion, representing 107% year-over-year growth and an 8% increase. from one quarter to the next. This appears to be a slowdown, but Nvidia is starting to run into tougher comparisons. However, the first quarter target was $24 billion while the actual figure was $26 billion.
Nvidia’s activity is not slowing down. And it probably won’t. According to CEO Jensen Huang, “The next industrial revolution has begun: Companies and countries are partnering with NVIDIA to move traditional, trillion-dollar data centers to accelerated computing and build a new type of data centers – AI factories – to produce a new commodity: artificial intelligence.
2. Stock is not as expensive as you might think
One of the reasons why many have avoided buying the stock despite its success is its valuation. Before announcing its first quarter results, Nvidia was trading at 35 times forward earnings. It is cheaper than Microsoftwhich trades at 36 times forward earnings, but Nvidia is growing faster.
When a company transforms an industry like Nvidia, it’s difficult to value a stock because of so many unknowns. With the transformation brought by AI and the massive amount of infrastructure needed to implement this change, Nvidia will continue to succeed, and the stock’s valuation is a less important factor.
3. Nvidia’s dividend increases
Another announcement that Nvidia buried in its earnings release was a 150% dividend increase. Prior to the hike, the company paid shareholders $0.04 per share as a quarterly dividend, which equates to a yield of 0.016%. This essentially made the dividend a non-determining factor in stock ownership.
With the stock raise and split, Nvidia will now pay investors a quarterly dividend of $0.01 per share, for a yield of 0.04%. That’s still not impressive, but it’s the basis for a much larger payout.
Many investments are currently being made to produce the most powerful GPU possible. Eventually, this demand will decrease and Nvidia will be able to increase its dividend to a significant amount by redirecting its cash flows to return capital to shareholders.
For now, management believes it is more attractive to reinvest its cash flow into the business rather than pay dividends. And so far, that has been true.
None of these reasons have anything to do with the stock split itself, but it is voluntary. Stock splits are mostly cosmetic actions and only have consequences if investors cannot access the fractional shares or trading options.
There are much better reasons to buy Nvidia stock than a split announcement. If you buy now and the stock sees a big rise due to the announcement, you will benefit in the short term. But the three reasons mentioned above will have more impact in the long term.
Should you invest $1,000 in Nvidia right now?
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Keithen Drury has no position in any of the stocks mentioned. The Motley Fool ranks and recommends Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Mad Motley has a disclosure policy.
3 Good Reasons to Buy Nvidia Stock Before Their Stock Split was originally published by The Motley Fool
