Nvidia (NASDAQ: NVDA) has risen to a share price of almost $1,000, which is usually a threshold at which investors start to expect a stock split. While there’s no hard and fast rule about when to expect a split (some companies never do), history tells us that Nvidia could be considering one now.
Plus, May 22 could be the day one is announced, and that’s just around the corner. The last time Nvidia announced a stock split, its shares went wild and rose significantly. So, should you buy ahead of this possible announcement?
The last stock split was announced at the same time in 2021
The last time Nvidia did a stock split was on July 20, 2021. That four-for-one split broke each Nvidia share into four separate pieces, quadrupling the number of shares and lowering the stock price to 25% of its original value . Without this split, Nvidia stock would be around $3,600 today.
However, the timing of this latest split announcement paves the way for a possible May 22 announcement during the Q1 FY 2025 earnings release. In the Q1 2022 earnings release (which took place on May 26, 2021), Nvidia announced to shareholders that its board of directors had agreed to split the shares. This is perfect timing, as the annual shareholder meeting would take place just a few weeks later so shareholders could approve the vote. At the time, Nvidia was trading around $600, so the stock is much more expensive today than when it decided to split its shares.
With almost the same scenario expected three years later, I wouldn’t be surprised if Nvidia announces a stock split on May 22. The question is: will this cause a run-up like last time? After Nvidia’s first quarter results were announced, the stock was on an impressive tear until the date of the stock split.
With shares up 30% in the days following the stock split announcement, who wouldn’t want to get ahead of that move? However, investors should not expect this kind of response again.
Should Nvidia’s stock price rise 30% from current levels, its market capitalization would rise from $2.3 trillion to roughly $3 trillion. That would allow Nvidia to surpass Apple as the second largest company in the world and placed it within striking distance of Microsoft as the largest company in the world.
I doubt a stock split announcement will create nearly $700 billion in value. Fortunately, there are other reasons to buy the shares.
Nvidia’s growing business is driving its share price higher
Although the threshold at which companies split their shares varies for each company, the reason remains the same: their stock price has become too expensive. This happens because the company is successful – a big problem.
Nvidia’s business has been on fire lately, selling its graphics processing units (GPUs) at an incredible pace to meet demand for data centers built to fuel the artificial intelligence (AI) arms race to float.
Any stock movement due to a possible stock split announcement should be attributed to the GPU business as it is the driving force behind the stock. With management guiding investors for revenue of approximately $24 billion in the first quarter (indicating 234% growth), we can expect another monster quarter.
While a stock split announcement may be coming, investors should look further to determine whether Nvidia is a potential buy (or not).
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Consider the following before buying shares in Nvidia:
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Keithen Drury has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
History Says There Could Be an Nvidia Stock-Split Announcement on May 22 Originally published by The Motley Fool
