When Nvidia (NASDAQ: NVDA) announced its first quarter 2025 results (ended April 28), the company achieved record results that shattered Wall Street expectations. Shareholders, however, were more intrigued by another development.
Along with the earnings release, Nvidia management announced a significant 10-to-1 stock split. Since the May 22 announcement, shares are up more than 14% (at the time of writing), and the stock is already up 117% so far this year. That clearly indicates that investor interest remains strong, likely fueled by Nvidia’s strong ties to artificial intelligence (AI).
The stock split will take place after market close on Friday, June 7. Does the upcoming stock split make Nvidia a once-in-a-generation investment opportunity? Let’s see what the evidence shows.
Stock Split Summary
A brief summary of the reasoning behind a stock split can give this process perspective. If a company performs well over the long term, that performance will be reflected in the company’s rising stock price, putting expensive stocks out of reach for some potential investors.
To correct this disparity, management may proceed with a stock split to lower the stock price. Nvidia noted in its announcement that the move was intended “to make stock ownership more accessible to employees and investors.” As a result, ordinary investors can afford to buy whole shares instead of the fractional shares offered by some brokerage firms.
Once the stock split takes place, shareholders will receive nine additional Nvidia shares for every share they already own. Although there will be ten times as many shares, they will trade at 1/10th the price, so fundamentally nothing will change. The same things that drove Nvidia’s stock price to its current levels will still be at play in the future.
Are Nvidia Stocks a Buy?
Beyond the mechanics of the stock split, one key question remains: Does Nvidia represent an attractive investment opportunity ahead of the highly anticipated stock split? Let’s review the company’s recent results.
In fiscal 2024 (ending January 28), Nvidia’s revenue rose 126% year over year to a record $60.9 billion. At the same time, earnings per share (EPS) rose 586% from $11.93. CEO Jensen Huang left no doubt about what was driving the growth spurt. “Accelerated computing and generative AI have reached the tipping point. Demand is rising globally across companies, industries and countries,” said Huang.
Nvidia’s first quarter 2025 results were more or less the same. Record revenue of $26 billion grew 262% year over year, while earnings per share of $5.98 rose 629%. Management’s guidance suggested growth would continue, as the second quarter forecast projected revenue of $28 billion, which would represent year-over-year growth of 107%. It’s no exaggeration to say that this is clearly the result of a company firing on all cylinders.
The stunning adoption of AI is driving the results, and most experts agree the demand won’t end anytime soon. Generative AI reduces time spent on time-consuming, mundane tasks, increasing productivity. According to research from McKinsey & Company, this economic boom is expected to add between $2.6 trillion and $4.4 trillion to the global economy over the next decade.
Since Nvidia’s graphics processing units (GPUs) are the gold standard for running AI systems, the company is expected to continue to benefit from the resulting windfall. This long-term tailwind will swing in the company’s favor for the foreseeable future.
There are those who view Nvidia’s premium valuation as a sticking point, and there is certainly merit to that argument. The stock is currently selling for 63 times earnings, which certainly seems outrageous at first glance. The results are not nearly as bad looking ahead, as Nvidia’s price-to-earnings ratio (P/E) stands at 39. For comparison, the S&P 500 has a multiple of 27, so there’s definitely a big difference. That said, this isn’t it Real an apples-to-apples comparison.
Over the past ten years, Nvidia’s revenue has increased by 2,260% and net income by 11,530%. These results have sent the stock price up 22,640%, while the S&P is up only 170%.
Clearly, Nvidia stock won’t appeal to every investor, especially those concerned about the stock’s valuation. For those who fall into that camp, I would suggest buying the stock at any major pullback or sign of weakness. However, given Nvidia’s strong track record of results and the gale-force secular tailwinds blowing in its favor, I would argue that the evidence supports the premium valuation.
All things considered, I think this is a strong argument that Nvidia is a once-in-a-generation investment opportunity. As for the question that kicked off this post: I don’t think it matters whether investors buy Nvidia stock before or after the stock split date, but as I laid out above, I certainly believe it’s a buy.
Should You Invest $1,000 in Nvidia Now?
Before you buy shares in Nvidia, consider the following:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $671,728!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns May 28, 2024
Danny Vena has positions at Nvidia. The Motley Fool holds positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
Is Nvidia Stock a One-Time Investment Opportunity Ahead of the 10-for-1 Stock Split on June 7? was originally published by The Motley Fool
