Should You Buy Nvidia Before the June 7 Stock Split?

Should You Buy Nvidia Before the June 7 Stock Split?

Nvidia (NASDAQ:NVDA) dominates the market for artificial intelligence (AI) chips, helping profits soar by triple digits in recent years. AI is perhaps the hottest investment theme right now, and it could continue to do so. After all, analysts estimate that the AI ​​market could be worth more than $1 trillion by the end of the decade. So it’s no surprise that Nvidia shares have skyrocketed, rising 600% over the past three years.

This momentum has helped push Nvidia shares near $1,000 in recent times. And they actually surpassed that level after the company reported another explosive quarter, accompanied by a move many investors were hoping for: a stock split.

This will significantly lower the price of each Nvidia stock. The big question is: Should you buy Nvidia stock before the June 7 stock split or wait until you can get shares at a lower price?

Should You Buy Nvidia Before the June 7 Stock Split?

Image source: Getty Images.

Lower the price of each stock

Let’s first talk about Stock distribution, in general. They do not change the market value of a company or the value of your ownership interest if you already own the shares. Instead, a stock split will reduce the price of each share by offering more shares to current holders. The sharing ratio determines how many shares each investor will receive.

In Nvidia’s case, it’s a 10-to-1 stock split, so for every share you own, you’ll receive an additional nine. At the current price of around $1,139, each individual share will now sell for $113. You will need to be a shareholder of record as of June 6 to benefit from this, and the additional shares will be distributed after the market closes on June 7.

Should you get into Nvidia before or after this long-awaited stock split? The short answer is that it doesn’t matter, and here’s why. As mentioned previously, a stock split does not change the value of the company or the value of an investor’s holdings. If you buy one share today or 10 shares after the split, you will invest the same amount of cash.

Additionally, stock splits themselves are not catalysts for stock performance since they are just mechanical moves. So Nvidia stock is unlikely to soar the day after the split simply because a split has occurred. Any potential gains, which could arise now or after the split, would likely be linked to the company’s recent results or future growth prospects.

Opening the door to a wider range of investors

The split is positive for Nvidia because it gives a wider range of investors access to the stock, and the company even indicated that this was the reason for launching the deal. Yes, fractional shares exist, but some brokerages don’t offer them and some investors prefer to buy whole shares. This doesn’t mean a huge wave of new investors will buy Nvidia stock after the split, but over time a lower price per share could attract more investment.

Now back to you. If you want to bet on a current and future leader in AI, Nvidia is a great buy (now or post-split). The company’s graphics processing units (GPUs) power key AI tasks of training and inference, and much more. And demand for Nvidia’s chips and systems is so high that the company says it’s “racing” to keep up.

Meanwhile, Nvidia is set to launch its Blackwell architecture and most powerful chip ever later this year. And the company is committed to updating its top-performing chips every year. So it will be very difficult for competitors to overthrow this market giant.

While we all tend to look at a stock’s price and immediately think “that’s cheap” or “that’s expensive,” it’s important to instead look at the valuation, or what the stock is actually worth. action. Today, Nvidia trades at 42 times forward earnings, which seems reasonable, given the company’s market position and growth prospects.

Nvidia is a great buy and could provide you with explosive growth over time, whether you buy the stock before or after the next stock split.

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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool Ranks and Recommends Nvidia. The Mad Motley has a disclosure policy.

Should you buy Nvidia before the June 7 stock split? was originally published by The Motley Fool

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