Should You Buy Nvidia Before the Stock Split? | The Motley Fool (2024)

Nvidia is about to do a 10-for-1 stock split. Is it a buying opportunity?

Don't look now, but Nvidia (NVDA -0.68%) stock is soaring again.

Shares of the leading AI chip maker are getting another boost after a strong first-quarter earnings report on May 22 and the surprise announcement of a 10-for-1 stock split.

Coming into the earnings report, there were some signs that the booming AI stock had run its course. Billionaire investors like Stanley Druckenmiller, who capitalized on the earlier surge in Nvidia shares, had begun selling the stock, saying that the upside potential in Nvidia stock had already been captured.

Nvidia shares even fell through much of April, losing 10% on April 19 as a broader scare among AI stocks led to a widespread sell-off, leading some to believe that a bubble in the AI sector was starting to burst.

However, investors who held through that volatility were rewarded when Nvidia stock soared on its recent earnings report, climbing 9.3% on May 23 and adding another 11% over the following days as the company easily beat estimates, touted strong momentum, and announced the stock split, which is set to go into effect on June 10.

With the 10-for-1 split coming down the pike, it seems like an obvious question for investors who don't already own the stock or are considering adding some more: Should you buy Nvidia stock before the split?

Let's take a look at some of the key factors investors should be considering in order to make that decision.

Should You Buy Nvidia Before the Stock Split? | The Motley Fool (1)

Image source: Getty Images.

What the stock split means for Nvidia

Stock splits tend to attract a lot of attention among retail investors, but before you dump your life savings into Nvidia, it's important to understand what the split actually means for the stock.

A stock split doesn't change the fundamentals of a business. A stock split is a relatively simple process of splitting the company's "pie" into more pieces. Investors end up with more shares, but those shares are worth proportionally less. In the case of Nvidia's stock split, investors will own 10 times as many shares as before, but the shares will only be worth one-tenth of what they were before the split.

While stock splits don't change anything for the business and only affect the share price nominally, they have a positive connotation in the stock market. Some of that may be a simple misunderstanding about what a stock split does, but part of the reason is that a stock split acts as a milestone for a stock's growth and triggers interest in the stock. It's a way of resetting the share price both in actuality and psychologically, preparing it for another run-up.

In the case of a stock like Nvidia, a 10-for-1 split also sets it up to possibly become a component of the Dow Jones Industrial Average, as its current price of around $1,100 effectively disqualifies it from inclusion in the Dow because it's a price-weighted index and Nvidia's high price would distort the index.

A stock split also occurs after a stock has made sufficient gains, meaning it's representative of successful companies. Laggards don't need to split their share prices because they never gain enough to warrant. A lower share price also makes the stock more affordable for retail investors, bringing in more newer investors.

There's also some evidence that, on average, stock split stocks tend to outperform the S&P 500 over the next year. According to research from Bank of America, stocks that split have delivered an average of 25% total returns in the following 12 months, compared to just 12% for the S&P 500.

However, that's far from an ironclad rule, as 30% of those stock-split companies saw their share price drop over the ensuing year. For Nvidia, it seems like the stock split announcement is helping to move the stock higher for now.

Should you buy Nvidia stock before the split?

It's difficult to predict short-term movements in stock prices, and the recent run-up in Nvidia's share price brings with it the risk of a "sell-the-news" type of event when the split actually goes through.

However, Nvidia reminds us quarter in and quarter out that the hype around the stock is well-deserved. The chipmaker continues to put up astonishing growth numbers and breeze past Wall Street estimates. And despite the pearl-clutching among some investors about competition and a potential bubble in AI stocks, Nvidia's latest update made it clear that competition is not yet a significant threat in the rapidly growing data center GPU market and that its growth rate remains strong even as comparisons are getting more difficult.

Additionally, Nvidia continues to offer the most comprehensive vision of a generative AI-centric future, and CEO Jensen Huang's portrait of "AI factories," or large clusters for AI training and inference for big tech companies like Tesla and Meta Platforms, is compelling. It's also something no other company can currently come close to matching.

For now, the AI race looks like it's Nvidia's to lose, and the chip titan is showing no signs of slowing. Given that reality, buying Nvidia shares before the stock split looks like a smart move.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Jeremy Bowman has positions in Bank of America and Meta Platforms. The Motley Fool has positions in and recommends Bank of America, Meta Platforms, Nvidia, and Tesla. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.

Should You Buy Nvidia Before the Stock Split? | The Motley Fool (2024)

FAQs

Should You Buy Nvidia Before the Stock Split? | The Motley Fool? ›

It's also something no other company can currently come close to matching. For now, the AI race looks like it's Nvidia's to lose, and the chip titan is showing no signs of slowing. Given that reality, buying Nvidia shares before the stock split looks like a smart move.

Is it a good time to buy NVDA stock? ›

In 2023, AI stock Nvidia had a huge 239% run and it's up more than 190% so far this year. Nvidia is past a profit-taking zone from a split-adjusted buy point of 97.40. It's best now to wait for another base or follow-on buy point to make an initial position in the AI chip stock. It is not a buy right now.

Should I buy Nvidia after split? ›

After the split, Nvidia's fair value estimate was adjusted to $105. The firm's wide economic moat rating was unaffected, as was its 3-star rating (meaning the stock is considered fairly valued) and very high uncertainty rating.

Do you want to buy a stock before it splits? ›

Final Thoughts. It's important to note, especially for new investors, that stock splits don't make a company's shares any better of a buy than prior to the split. Of course, the stock is then cheaper, but after a split the share of company ownership is less than pre-split.

What does Nvidia stock split mean for investors? ›

Nvidia's stock split means that investors got nine additional shares for each share of Nvidia common stock they owned at the market's close on Friday, June 7. You should keep in mind that these shares of NVDA stock are still worth the same amount of money following the stock split as they were prior to it.

What will Nvidia be worth in 5 years? ›

Prediction: Nvidia, Now the World's Most Valuable Company, Will Hit a Market Cap of $5 Trillion by 2026. Nasdaq.

Does Warren Buffett own Nvidia? ›

Key Takeaways. Warren Buffett's Berkshire Hathaway as of the end of 2023 had no stake in Nvidia, a company at the center of rising investor enthusiasm about growth opportunities related to artificial intelligence.

When should I buy stock before or after split? ›

Usually when the stock split is announced, the price of the stock increases. Investors might profit from this in an ideal world. But trading on knowledge of stock split before it is publicly disclosed is insider trading. * Please note Brokerage would not exceed the SEBI prescribed limit.

What is the target price for NVDA? ›

Stock Price Targets
High$200.00
Median$127.50
Low$15.00
Average$127.39
Current Price$135.58

What is the prediction for Nvidia stock? ›

The average Wall Street forecast for Nvidia's earnings in 2026 overall is $4.10 and the average price target on the stock is $126.24, according to FactSet. at $3.28 trillion. Bulls are suggesting that Nvidia could stretch its lead further.

Do stocks usually go up before a split? ›

A stock split usually takes place after an increase in the price of the stock, and it carries a positive stock price reaction.

Do you double your money when a stock splits? ›

While the number of shares owned changes after a stock split, the split itself does not change your investment value.

Is Nvidia splitting in 2024? ›

So if you held 10 NVDA shares before the split, you'll now hold 100 NVDA shares after the split. Shares will begin trading at their new split-adjusted price on Monday, June 10, 2024.

Should I buy Nvidia stock after split? ›

The stock split itself isn't a reason to buy Nvidia: Instead, you'll want to invest in the company for fundamental reasons such as its earnings track record or long-term outlook.

Is your portfolio worth more right after a stock split? ›

Stock splits have no tangible impact on a company's total value—they simply create more shares at more affordable prices. Nor does a split change the total value of an investor's portfolio holding per se.

What will the Nvidia stock price be in 2025? ›

Long-Term NVIDIA Stock Price Predictions
YearPredictionChange
2025$ 244.3680.23%
2026$ 440.40224.83%
2027$ 793.74485.44%
2028$ 1,430.57955.15%
2 more rows

What will Nvidia be worth in 2025? ›

Long-Term NVIDIA Stock Price Predictions
YearPredictionChange
2025$ 244.3680.23%
2026$ 440.40224.83%
2027$ 793.74485.44%
2028$ 1,430.57955.15%
2 more rows

Will Nvidia share rise? ›

Nvidia Corp. shares are up 165% so far this year, but Susquehanna analyst Chris Rolland thinks they can still go much higher. He boosted his price target on Nvidia's stock (NVDA) to $160 from $145, with the new target implying 21% upside from the stock's closing price on Friday.

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