Recent years have seen a renaissance in the popularity of stock splits. This practice was common in the 1990s but had fallen out of favor and was only discovered in recent years by a new generation of investors. Companies will generally make the decision to split their shares after years of strong growth and solid financial results fueling a rising share price.
This year there are some great examples:
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Nvidia (NASDAQ: NVDA) performed a 10-for-1 split, payable on June 7, 2024.
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Chipotle announced a 50-1 split, payable on June 25, 2024.
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Broadcom delivered a 10-for-1 split, payable on July 12, 2024.
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Super microcomputer performed a 10-for-1 split, payable on September 30, 2024.
The common thread that weaves these disparate companies together is years, if not decades, of market-beating returns.
If I could only buy one stock right now, Nvidia would be at the top of my list. This is why.
An uncanny ability
Most investors (myself included) would point to the enormous opportunities presented by artificial intelligence (AI) as the main reason to own Nvidia stock. That is certainly one of the most important factors (more on that later). However, one of the most intriguing aspects of the company is the uncanny net worth of CEO Jensen Huang anticipate the next big thing and design solutions to meet that need.
Nvidia pioneered the graphics processing unit (GPU) that revolutionized gaming in 1999, but the company was already looking ahead and by 2006 had adapted the technology to accelerate supercomputing. The humble GPU is now the gold standard for cloud computing and data centers around the world, dominating 98% of the data center GPU market last year, according to data from TechInsights.
There’s more. Investors may be surprised to learn that Huang already positioned Nvidia to tackle the coming AI revolution back in 2013, betting the company’s future on technology that had not yet come into its own. When AI went viral early last year, Nvidia was able to reap the seeds that Huang had sown a decade earlier.
The results paint a picture
“A picture says more than a thousand words,” goes the old saying. In this case, however, it’s Nvidia’s financial results that tell the story. For the second quarter of 2025 (ended July 28), Nvidia generated record revenue of $30 billion, which increased 122% year over year and 15% sequentially. The results were driven by record data center revenue of $26.3 billion, an increase of 154%. Earnings also soared, as evidenced by diluted earnings per share (EPS) of $0.67, up 168%.
Management expects Nvidia’s winning streak to continue, albeit at a slower pace. Nvidia’s forecast calls for revenues of $32.5 billion, which would mean year-over-year growth of 79%, with a corresponding increase in profitability. While that’s slower than the triple-digit growth the company has achieved for five straight quarters, it’s still a notable achievement.
Why now?
I can guess what you’re thinking. Sure, Nvidia has been a rocket ship since early last year, but the low-hanging fruit has already been picked. After all, the stock is up 837% since the start of last year (as of the market close on Thursday) and hit a new all-time high this week.
Here’s the problem. We are still in the early stages of AI and new use cases are still being developed. Some will point to the early fumbles as evidence that the technology isn’t ready for prime time. While that’s partially true, it won’t be long before the bugs are ironed out and AI comes into its own. With that in mind, I’d say the best AI-related gains are yet to come.
Estimates on the size of the generative AI market abound, but there is no consensus. The market is estimated to be worth $1.3 trillion by 2032, according to Bloomberg Intelligence. A more bullish estimate comes from Ark Invest Big Ideas 2024 report, in which Cathie Wood states that the AI software market only could generate a $13 trillion increase in spending by the end of the decade. Her bull case is even more striking at $37 trillion. The truth is, we don’t know how big generative AI will be, yet estimates continue to rise.
Furthermore, bears would say the shares are exorbitantly expensive and “priced to perfection,” and they’d be right. Nvidia shares are currently selling for 64 times earnings and 35 times revenue, which would be outrageous in most cases. And if the situation were different, I would be tempted to agree.
However, analyst consensus estimates, which have proven conservative over the past year, expect Nvidia to generate earnings per share of $4.05 for the 2026 fiscal year, which starts in January. Based on the stock’s closing price on Thursday, that works out to about 33 times forward earnings, which isn’t much more expensive than the stock’s multiple of 30. S&P500. Wall Street also expects Nvidia to grow its profits 52% annually over the next five years, illustrating why the stock is worth a premium.
All told, this provides compelling evidence that Nvidia’s growth is far from over, that the addressable market for AI continues to grow, and that the stock is not as expensive as it seems.
There’s one more thing: I’m counting on Huang to predict the next big thing and pivot Nvidia’s technology to provide solutions – and profit handsomely from it.
It doesn’t get much better than that. If I could only buy one stock right now, it would be Nvidia.
Don’t miss this second chance at a potentially lucrative opportunity
Have you ever felt like you missed the boat on buying the most successful stocks? Then you would like to hear this.
On rare occasions, our expert team of analysts provides a “Double Down” Stocks recommendation for companies they think are about to pop. If you’re worried that you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
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Amazon: If you had invested $1,000 when we doubled in 2010, then you have $21,285!*
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Apple: If you had invested $1,000 when we doubled in 2008, you would have $44,456!*
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Netflix: If you had invested $1,000 when we doubled in 2004, you would have $411,959!*
We’re currently issuing ‘Double Down’ warnings for three incredible companies, and another opportunity like this may not happen anytime soon.
See 3 “Double Down” Stocks »
*Stock Advisor returns October 14, 2024
Danny Vena holds positions at Chipotle Mexican Grill, Nvidia and Super Micro Computer. The Motley Fool holds positions in and recommends Chipotle Mexican Grill and Nvidia. The Motley Fool recommends Broadcom and recommends the following options: Short December 2024 Put $54 on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
If I could only buy one stock right now, this split stock would be it. was originally published by The Motley Fool
