Nvidia (NASDAQ: NVDA) the last split of its shares in 2021, a 4-for-1 split to bring the stock price down from $600 to around $150. Now, due to the company’s success in recent years, management has decided that there one more is needed.
During its last earnings release, Nvidia announced a 10-for-1 stock split that will take place on June 10, lowering its stock price from $1,000 to $100 per share.
Many people (myself included) saw this split coming. It will impact some investors who don’t have access to fractional shares. In the past, stock split announcements caused huge run-ups in the weeks leading up to the split. Last time, Nvidia rose 20% between the split announcement and the effective date.
If you want to buy Nvidia stock before the split, I have three good reasons why it’s a good idea.
1. Data center revenue growth isn’t slowing down
Nvidia’s main products are graphics processing units (GPUs), which can handle intensive computing workloads. Because 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, sending stock prices to new heights. Nvidia recognizes revenue from GPUs used in AI in its data center division, which grew revenue an astonishing 427% year over year in the first quarter of fiscal 2025 (ending April 28).
While that’s impressive, what investors really wanted to see was the quarter-over-quarter growth rate – whether demand for AI is growing or shrinking from one quarter to the next. And with revenue up 23% from the fourth quarter, it’s clear that demand for AI computing power is still growing.
Nvidia isn’t providing segment-specific guidance, but second-quarter revenue is expected to be about $28 billion, indicating 107% year-over-year growth and an 8% quarter-over-quarter increase. This appears to be a delay, but Nvidia is starting to face tougher comparisons. However, it consistently exceeded its expectations: the target for the first quarter was $24 billion, while the actual figure was $26 billion.
Nvidia’s business isn’t slowing down. And that probably won’t happen. According to CEO Jensen Huang, “The next industrial revolution has begun – companies and countries are working with NVIDIA to shift the trillion-dollar traditional data centers to accelerated computing and build a new type of data center – AI factories – to produce a new product: artificial intelligence.”
2. The shares are not as expensive as you might think
Part of the reason 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 expected earnings. That’s cheaper then Microsoftthat trades at 36 times forward earnings, yet 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 that AI brings and the vast amount of infrastructure required to make that change, Nvidia will continue to succeed, and the stock’s valuation will be a less important factor.
3. Nvidia’s dividend is growing
Another announcement Nvidia had hidden in its earnings release was a 150% dividend increase. Before the blow, it paid shareholders $0.04 per share in a quarterly dividend, for a yield of 0.016%. That essentially made the dividend a non-factor in owning the stock.
With the raise and stock split, Nvidia will now pay investors a quarterly dividend of $0.01 per share, for a yield of 0.04%. That’s still nothing impressive, but it’s the basis for a much larger payment.
A lot of investment is being made to produce the most powerful GPU possible today. Ultimately, this demand will subside and Nvidia can increase its dividend to a meaningful amount if it redirects its cash flows to return capital to shareholders.
For now, management sees more value in reinvesting cash flows in the business than in paying dividends. And so far it’s true.
None of these reasons have anything to do with the stock split itself, but that’s on purpose. Stock splits are usually cosmetic actions and only have consequences if investors do not have access to fractional shares or trading options.
There are far better reasons to buy Nvidia stock than a split announcement. If you buy now and the stock sees a huge rise following the announcement, you will benefit in the short term. But the three reasons I discussed above will have a bigger impact in the long run.
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Keithen Drury has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
3 Brilliant Reasons to Buy Nvidia Stock Before the Stock Split was originally published by The Motley Fool
