Nvidia (NASDAQ: NVDA) Share prices have continued their stunning rally into 2024, as the chipmaker’s shares are already up an eye-popping 144% so far this year. And the good thing is that the company has given investors several reasons to be optimistic in recent days.
The company reported stellar first-quarter 2025 results that dispel any doubts about Nvidia’s dominance in the artificial intelligence (AI) chip market. Furthermore, it unveiled a new chip architecture that will be launched in 2026, a move that could ensure it maintains its technological edge over its competitors.
Furthermore, Nvidia management’s announcement of a 10-for-1 stock split appears to have given the stock another major boost, pushing the company’s market cap to nearly $3 trillion at the time of writing. Nvidia became the second most valuable company in the world shortly afterwards Microsoftto overtake Apple in the charts before falling to third position.
But can Nvidia overtake Microsoft and eventually move to a $5 trillion market cap in the wake of its stock split? Let’s find out.
Nvidia shares have soared since the last stock split
First of all, investors should keep in mind that a stock split is nothing more than a cosmetic move. It doesn’t change a company’s fundamentals, market cap, or prospects. In a forward stock split, a company simply increases the number of shares outstanding while keeping its market capitalization intact. So in the case of Nvidia, a 10-to-1 stock split that took effect on June 7 means that if you owned one share before the split, you would now own 10 shares.
However, the value of your investment will not change as the price of each Nvidia share will be reduced to reflect the split. This makes it clear that Nvidia’s stock split will not change the company’s fundamentals and growth engines, nor should it impact its market performance.
At the same time, there is a belief that stock splits can increase demand for a company’s shares. Investors who previously couldn’t afford to buy Nvidia stock will now be able to do so, as the price of each share will drop significantly after the split due to an increased number of shares. Of course, many brokerage firms allow investors to purchase fractional shares, so the concept of a split may be redundant for those investors.
However, if we look at Nvidia’s previous stock split, which was carried out in July 2021, we can see that the shares have soared in value since then. Nvidia management announced a 4-for-1 stock split on May 21, 2021, and trading began on a split-adjusted basis beginning July 20 of that year.
Nvidia stock has risen as much as 706% since it announced its 4-for-1 split three years ago in May.
The market cap rose from $373 billion on May 21 to just under $3 trillion today. Now, past performance is not an indicator of a company’s future, and buying Nvidia after its stock split on the expectation that it could repeat its stunning run because of a cosmetic procedure is illogical.
However, a closer look at Nvidia’s prospects suggests that the company could very well reach a market cap of $5 trillion despite the stock split. Let’s look at the reasons.
Why a $5 Trillion Market Cap Seems Achievable
To understand why Nvidia stock has risen so remarkably over the past three years, let’s take a look at its financial performance during this period.
Nvidia’s revenue in fiscal 2021 (which ended January 2021) was $16.7 billion, while non-GAAP (generally accepted accounting principles) net income was $6.27 billion. Looking back to fiscal 2024 (which ended in January this year), Nvidia’s revenue was $60.9 billion, and non-GAAP net income rose to $32.3 billion. That translates to a compound annual growth rate (CAGR) of 54%, while profits rose at a CAGR of almost 73%.
The huge demand for Nvidia’s AI chips has been central to this phenomenal growth. Of the $60.9 billion in revenue it generated in fiscal 2024, $47.5 billion came from the data center segment. It’s worth noting that Nvidia’s data center revenue shot up 427% year-over-year to a record $22.6 billion in the first quarter of fiscal 2025 (which ended April 28, 2024). So, in just one quarter of the new fiscal year, Nvidia has generated almost half of its fiscal year 2024 data center revenue.
More importantly, the company’s robust data center growth will continue as management points out that the demand for the upcoming Blackwell-based AI chips is so high that it will be difficult to achieve the same in 2025. In addition, Nvidia is looking to keep its rivals under fire by announcing the Rubin platform for 2026, which will succeed the Blackwell architecture.
While Nvidia hasn’t provided many details about Rubin, one can expect chips based on this platform to be faster than the Blackwell processors as they can be manufactured using an advanced 3-nanometer (nm) process. Manufactured using a 4nm process, the Blackwell chips offer a dramatic increase in computing power and efficiency over the previous generation Hopper architecture.
All this explains why analysts are optimistic about Nvidia’s data center growth and expect this segment to generate phenomenal revenues in the coming years. Furthermore, as the following chart indicates, Nvidia’s revenue could exceed $182 billion in fiscal year 2027.
Using fiscal year 2024 revenue of $60.9 billion as a base, the above fiscal year 2027 revenue forecast suggests that Nvidia’s revenue could achieve a CAGR of more than 44% over the next three years. Add to that Nvidia’s pricing power in the AI chip market, and profits could grow faster.
Nvidia stock needs to rise another 68% from current levels to reach a market cap of $5 trillion, and the potential growth it could deliver over the next three years could help it reach that milestone.
Should You Invest $1,000 in Nvidia Now?
Consider the following before buying shares in Nvidia:
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Apple, 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.
Will Nvidia go to $5 trillion after 10-for-1 stock split? was originally published by The Motley Fool
