Nvidia may be an exciting stock, but its 10-to-1 stock split – like most stock splits – is nothing special

If you don’t know much about the semiconductor giant Nvidia (NASDAQ: NVDA), it’s worth learning about because the company has been a huge success in the field of artificial intelligence (AI) lately. Nvidia is often in the news, most recently thanks to a 10-to-1 stock split that got many investors excited.

But most stock splits – including this one – aren’t as exciting as they seem. Before we tackle the stock split, we need to agree that Nvidia, the company, is exciting. The stock performance is certain:

Data source: Morningstar.com, as of June 3, 2024.

Those are eye-popping numbers. An annual return of 50% will increase an investment more than 437 times in 15 years! If you owned only Nvidia for the past five years, your stake would have doubled in value every year on average.

Nvidia’s stock performance is exciting because its underlying business is exciting. Over the years, Nvidia has grown from a specialist in gaming chips to one that now makes the majority of its revenue from its data center technology. That’s due to the rising prevalence of artificial intelligence (AI), which increasingly requires semiconductor firepower.

Check out some additional exciting numbers from Nvidia:

Data source: Morningstar.com.

In the first quarter of Nvidia’s fiscal year 2025, revenue increased by a whopping 262% year over year! And total revenue for the next twelve months is almost $80 billion as artificial intelligence drives further data center growth. (AI could even fuel further growth in Nvidia’s gaming business.)

Nvidia’s stock split isn’t that exciting

Despite the legitimate enthusiasm about Nvidia and its stock, the excitement about the 10-for-1 stock split (which took place on June 7) is misplaced. Shares are up more than 20% since June 3 since the company announced impressive first-quarter results and its stock split on May 22.

What is a stock split?

Stock splits increase the number of shares and decrease the value of each share proportionately. A common split formula is 2-for-1, where you get two shares for every share you owned before the split, and the stock price is halved. But let’s see what happens with the Nvidia split.

Imagine owning 10 shares of Nvidia before the split, at a price of, say, $1,160 per share. The total value of your shares is $11,600. When the shares are split, you will receive 100 shares. But the stock price will suddenly be about a tenth of what it was – so about $116 each. Multiply your 100 shares by the price of $116 and you get a total value of $11,600.

The story continues

Stock splits are usually an accounting event and a no-brainer for most investors. However, in some cases, like this one, the split can bring the stock price to a level that works for more investors. Before the split, with Nvidia shares above $1,100, many people had assumed they couldn’t afford a single share.

What is a reverse stock split?

It’s worth noting that reverse stock splits also exist, and are a bit more meaningful because they’re typically done by struggling companies. A reverse split will drive up a stock’s price, which could prevent it from being delisted and make it look less like a risky penny stock.

If Nvidia were to do a 1-for-10 reverse split, your 10 shares would become one share, worth about 10 times what the shares traded for before the split. Again, the total value does not change.

Should You Buy Nvidia Stock?

Stock split aside, most people are probably wondering about Nvidia: Is it too late to buy shares now?

There is no one-size-fits-all answer to that question, and opinions on the valuation of any stock will generally differ. Many people consider Nvidia stock to be overvalued at recent levels, and that’s fair. For example, the recent price-to-sales ratio of 36 is well above the five-year average of 19.

But it’s also fair to view the apparently high valuation as not so outrageous, given how quickly the company is growing. (Note that it has been considered overvalued for years.)

So learn more about the company and calculate the figures yourself. If you plan to buy and hold for years, buying now can be a smart move. Even if there is a downturn in the near future, the company has a lot of long-term growth potential. However, if you are risk averse or afraid of volatility, look elsewhere.

Should You Invest $1,000 in Nvidia Now?

Consider the following before buying shares in Nvidia:

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Selena Maranjian has positions at Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.

Nvidia may be an exciting stock, but its 10-to-1 stock split is — like most stock splits — a nothingburger. originally published by The Motley Fool