Nvidia Stock Split: What You Need To Know (2024)

Celebrated chipmaker Nvidia (NVDA)—whose graphics processing units, or GPUs, are widely used in gaming, cryptocurrency mining, vehicles, robotics and now artificial intelligence—has completed its 10-for-1 stock split.

NVDA’s common stock shares have returned almost 30% since the May 22 announcement of the split, although the stock is now trading at a split-adjusted price of approximately $122 per share.

Nvidia shares have been uptrending since well before the company’s split declaration, however, skyrocketing roughly 155% since the start of this year.

Buy Nvidia Now, or Buy Later?

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. For example, if you owned one share of NVDA worth $1,200 prior to the split, following the split, you owned 10 shares of NVDA worth $120 each, or $1,200 in total.

Although some high-profile companies such as Amazon (AMZN) and Apple (AAPL) have issued stock splits as high as 20-for-1 in recent years, the most common ways for a company to split its stock are 2-for-1 or 3-for-1. This makes Nvidia’s 10-for-1 stock split noteworthy.

Trading for NVDA stock began on a split-adjusted basis when the market opened on Monday, June 10.

Why Nvidia Is Splitting Its Shares

Nvidia split its stock “to make stock ownership more accessible to employees and investors,” the company said in its first-quarter earnings announcement.

“Companies split their shares because they want investors to perceive them as more affordable with [investors having] the ability to buy more shares,” says Paul Schatz, president of Heritage Capital and treasurer of the National Association of Active Investment Managers.

A split does not change a company’s value or its market capitalization.

A company’s value, or market cap, is determined by the total number of shares multiplied by the value of a single share. This means that if—prior to a 10-for-1 stock split—the company had 10,000,000 total shares trading at $1,200 each, the company would have a market cap of $1.2 billion. Following the stock split, the company would have 100,000,000 shares trading at $120 each. This means their market cap is still $1.2 billion.

One thing that does change is a company’s number of outstanding shares. In the case of a 10-for-1 split, the number of shares outstanding increases tenfold.

Still, perception can differ from reality. “There are two psychological factors at work,” says Ric Edelman, financial advisor, bestselling author and board member of Edelman Financial Engines. “The first … is that the price is perceived to be more ‘affordable’ and thus of greater interest.”

“The second,” Edelman says, “which is more important and a more powerful motivator for investors, is that the new low price is perceived [to be] cheaper than the pre-split price, and investors view this as an opportunity to buy the shares ‘on sale’ with the expectation that the price will return to its pre-split level.”

But he adds: “This notion makes no sense logically, but every study done on the topic shows that investors don’t act rationally.”

Is a Split Stock a Good Buy?

Traders often feast on stocks post-split because they think the stock is ripe for a run-up due to its new, lower price.

“Many traders take advantage of this known bias in an effort to capitalize on the foolishness of other investors,” Edelman says.

In the past, many traders bought shares after a split because they believed stocks tended to rise toward the pre-split price within a year.

“But it doesn’t always work, of course,” Edelman says. “On Wall Street, nothing ‘always’ works.”

Some investors believe that a stock split is a bullish sign that reflects a rising stock’s positive momentum in the marketplace. Conversely, a reverse split is viewed by some investors as a sign that a company expects its growth to falter and its stock will lose value.

“It’s ironic: While investors irrationally believe that splits are bullish for price increases, they do not believe that reverse splits are bad. This inconsistency cannot be explained rationally,” Edelman says.

What’s Next for Nvidia Stock?

Nvidia stock cracked through the $1,000 per share level two days after the split disclosure, continuing an uptrend which began April 19. In the days leading up to the actual split, the company became only the third company ever to reach a $3 trillion market cap. The two prior companies to reach that level are Microsoft (MSFT) and Apple.

In an earnings call, Nvidia founder and chief executive Jensen Huang said, “The next industrial revolution has begun.”

In the same call, Huang also said, “Companies and countries are partnering with Nvidia to… build a new type of data center—AI factories—to produce a new commodity: artificial intelligence. AI will bring significant productivity gains to nearly every industry and help companies be more cost- and energy-efficient, while expanding revenue opportunities.”

Nvidia Earnings Growth

Earnings may not be directly connected to a split. But rising earnings do tend to lift stock prices. In Nvidia’s case, growing demand for chips that can deliver AI-capable devices in particular has rocketed Nvidia’s earnings aloft.

In its May 22 announcement, Nvidia reported record quarterly revenue of $26.0 billion. That was an increase of 18% from the fourth quarter and a 262% year-over-year jump.

The company also said its quarterly cash dividend would climb 150% to a penny per share on a post-split basis.

Further, Nvidia said its data center revenue alone had notched a quarterly record of $22.6 billion. That was up 23% from Q4 and a leap of 427% from a year earlier.

Earnings Forecast

Analysts generally are bullish about Nvidia’s prospects.

Angelo Zino, vice president and senior equity analyst at CFRA Research, predicts that Nvidia’s earnings will grow 108% this year and 30% next year. That dwarfs his forecasts for growth by the overall and its tech sector.

Zino sees earnings growth of 11% for the broad benchmark this year and next. He sees 18% earnings growth for the tech sector this year and 19% next year. “Safe to say that NVDA will outgrow both indexes over the next five years, in our view,” he says.

Nvidia: Part of the ‘Magnificent Seven’

Nvidia is not alone in posting impressive first-quarter numbers either.

The stock market’s “Magnificent Seven”—technology sector stalwarts Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Facebook parent Meta (META), Microsoft (MSFT), Nvidia and Tesla (TSLA)—posted a combined $118.65 billion in net income, or profit, for the first quarter of the year.

That was a jump of about 56% from over a year ago, even with Tesla’s profit slipping 55%. Nvidia’s gain was the Magnificent Seven’s largest in dollars and in percentage terms as well, at 628%.