Nvidia (NVDA 0.25%) last split its stock in 2021, a 4-for-1 split to reduce its $600 share price to around $150. Now, due to the company's success in the past few years, management has decided it needs another one.
During its last earnings release, Nvidia announced a 10-for-1 stock split that will occur on June 10, reducing its $1,000 stock price to $100 per share.
Many people (including myself) saw this split coming. It will affect some investors who don't have access to fractional shares. In the past, stock-split announcements caused massive run-ups in the weeks leading up to the split. Last time, Nvidia increased by 20% between the split announcement and the effective date.
If you're looking to buy Nvidia stock before the split, I have three good reasons why it's a good idea.
1. Data center revenue growth isn't slowing down
Nvidia's primary products are graphics processing units (GPUs), which handle intense computing workloads. Because GPUs process many calculations in parallel, they are great choices for complex tasks like training artificial intelligence (AI) models.
AI demand has been unprecedented over the past year, driving the stock to new heights. Nvidia recognizes revenue from GPUs used in AI in its data center division, which grew revenue by an astounding 427% year over year in the first quarter of fiscal 2025 (ending April 28).
While that's impressive, investors really wanted to see the quarter-over-quarter growth rate -- whether AI demand is growing or shrinking from one quarter to the next. And with revenue rising 23% from the fourth quarter's figure, it's clear that the demand for AI computing power is still growing.
Nvidia doesn't give segment-specific guidance, but second-quarter revenue is expected to be about $28 billion, indicating 107% year-over-year growth and an 8% quarter-over-quarter increase. This appears to be a slowdown, but Nvidia is starting to come up against more difficult comparisons. However, it consistently beat its guidance -- the first-quarter goal was $24 billion while the actual figure was $26 billion.
Nvidia's business isn't slowing down. And it likely won't. According to CEO Jensen Huang, "The next industrial revolution has begun -- companies and countries are partnering with NVIDIA to shift the trillion-dollar traditional data centers to accelerated computing and build a new type of data center -- AI factories -- to produce a new commodity: artificial intelligence."
2. The stock isn't as expensive as you might think
Part of the reason many have avoided buying the stock despite its success is its valuation. Before announcing first-quarter results, Nvidia traded at 35 times forward earnings. That's cheaper than Microsoft, which trades at 36 times forward earnings, yet Nvidia is growing more rapidly.
NVDA PE ratio (forward); data by YCharts. PE = price to earnings.
When a company is transforming an industry like Nvidia is, it's hard to value a stock because of so many unknowns. With the transformation that AI is bringing and the massive amount of infrastructure needed to execute that change, Nvidia will continue to succeed, and the stock's valuation is a less important factor.
3. Nvidia's dividend is growing
Another announcement Nvidia buried in its earnings release was a 150% dividend increase. Before the bump, it paid shareholders $0.04 per share in a quarterly dividend, equating to a 0.016% yield. That essentially made the dividend a nonfactor in owning the stock.
With the increase and the stock split, Nvidia will now pay investors a $0.01 per share quarterly dividend, for a 0.04% yield. That's still not anything impressive, but it's the foundation for a much larger payment.
Many investments are being made to produce the most powerful GPU possible right now. Eventually, this demand will decrease, and Nvidia can increase its dividend to a meaningful amount when it diverts its cash flows to return capital to shareholders.
For now, management sees more value in reinvesting its cash flows into the business rather than paying dividends. And so far, it has been right.
None of those reasons has anything to do with the stock split itself, but that's on purpose. Stock splits are mostly cosmetic actions and only have consequences if investors cannot access fractional shares or trade options.
There are far better reasons to buy Nvidia stock than a split announcement. If you buy now and the stock sees a huge rise due to the announcement, you'll benefit in the short term. But the three reasons I discussed above will be more impactful over the long term.
