Is Nvidia Stock a Once-in-a-Generation Investment Opportunity Ahead of Its 10-for-1 Stock Split?
Stock-split recap
A quick recap of the reason behind a stock split can help give this process perspective. If a business performs well over the long term, that performance is reflected in the company's rising stock price, putting the high-priced shares out of reach for some potential investors.
A quick recap of the reason behind a stock split can help give this process perspective. If a business performs well over the long term, that performance is reflected in the company's rising stock price, putting the high-priced shares out of reach for some potential investors.
To correct this inequity, management can embark on a stock split to reduce the share price. Nvidia noted in its announcement that the move was intended "to make stock ownership more accessible to employees and investors." As a result, everyday investors can afford to buy whole shares rather than the fractional shares offered by some brokerage firms.
Once the stock split takes place, shareholders will receive nine additional shares of Nvidia stock for every share they already own. While there will be 10 times as many shares, they will trade at 1/10th of the price, so fundamentally, nothing will change. The same things that drove Nvidia's stock price to its current level will still be in play going forward.
The mechanics of the stock split aside, one quintessential question remains: Does Nvidia represent a compelling investment opportunity ahead of its highly anticipated stock split?
In fiscal 2024 (ended Jan. 28), Nvidia's revenue soared 126% year over year to a record $60.9 billion. At the same time, earnings per share (EPS) of $11.93 surged 586%. CEO Jensen Huang left no doubt as to what was driving the growth spurt. "Accelerated computing and generative AI have hit the tipping point. Demand is surging worldwide across companies, industries, and nations," Huang said.
Nvidia's 2025 first-quarter results were more of the same. Record revenue of $26 billion grew 262% year over year, while EPS of $5.98 surged 629%. Management's guidance suggested its growth will continue, as its forecast called for second-quarter revenue of $28 billion, which would represent year-over-year growth of 107%. It isn't hyperbole to say that these are clearly the results of a business firing on all cylinders.
The stunning adoption of AI is driving the results, and most experts agree that demand won't end any time soon. Generative AI reduces time spent on time-consuming, mundane tasks, thereby increasing productivity. This economic boom is expected to add between $2.6 trillion and $4.4 trillion to the global economy over the coming decade, according to research compiled by McKinsey & Company.
Since Nvidia's graphics processing units (GPUs) are the gold standard for running AI systems, the company is expected to continue to benefit from the resulting windfall. These secular tailwinds will blow in the company's favor for the foreseeable future.
There are those who point to Nvidia's premium valuation as a sticking point, and there's certainly merit to that argument. The stock is currently selling for 63 times earnings, which certainly appears outrageous at first glance. The results aren't nearly as bad when looking ahead, as Nvidia's forward price-to-earnings (P/E) ratio clocks in at 39. For comparison, the S&P 500 has a multiple of 27, so there's certainly a wide gap. That said, this isn't really an apples-to-apples comparison.
Over the past decade, Nvidia's revenue has increased by 2,260%, and its net income has soared 11,530%. These results have driven its stock price up 22,640%, while the S&P has gained just 170%.
Clearly, Nvidia stock won't appeal to every investor, particularly those concerned about the stock's valuation. For those who fall into that camp, I would suggest buying the stock on any major pullback or signs of weakness. However, given Nvidia's strong track record of results and the gale-force secular tailwinds blowing in its favor, I would argue that the evidence supports its premium valuation.
Taken together, I believe this makes a strong case that Nvidia is a once-in-a-generation investment opportunity. As to the question that kicked off this missive, I don't think it matters whether investors buy Nvidia stock before or after the stock split date, but as I've laid out above, I certainly believe it's a buy.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
Read more
Comment
Sign in to post a comment
买跌不追涨 : Why didn't you talk about it a long time ago; now is still a once-in-a-lifetime opportunity?![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")