Nvidia (Nvidia)

When Nvidia last announced its stock split, its share price rose 20% in two months. In 2021, Nvidia carried out a 4-split 1 share split, reducing its price of $600 per share to around $150. Due to the company's success over the past few years, management decided to split the shares again.
At a recent earnings conference, Nvidia announced a 10-split 1 share split, reducing its price of $1,000 per share to $100. The split will take effect on June 10. Many people, including me, have already anticipated this split. Stock split announcements often trigger a sharp rise in stock prices within a few weeks before the split takes effect. Last time, Nvidia's stock price increased 20% between the announcement and the effective date.

I gave myself three reasons to support this decision to buy and hold Nvidia shares for the long term.
1. Data center revenue growth is not slowing down
Nvidia's main product is a graphics processing unit (GPU), which is suitable for processing complex tasks such as artificial intelligence (AI) model training. In the past year, demand for AI was at an all-time high, driving stock prices to new highs. Nvidia's data center division's revenue for the first quarter of fiscal year 2024 (ending April 28) increased 427% year over year. The increase was 23% month-on-month, indicating that demand for AI computing is still growing. Nvidia expects revenue for the second quarter to be around $28 billion, an increase of 107% year over year and an increase of 8% month on month. Although growth appears to be slowing, the company often exceeds expectations. The target for the first quarter was $24 billion, compared to an actual target of $26 billion. According to CEO Hwang In-hoon, “The next industrial revolution has begun, and companies and countries are cooperating with Nvidia to transform traditional data centers and establish new data center AI factories that produce artificial intelligence.”
2. Stock valuations are not as high as you think
Despite its success, many have shied away from Nvidia due to valuation issues. Prior to the announcement of first-quarter results, Nvidia's forward-looking price-earnings ratio was 35 times lower than Microsoft's 36 times, while Nvidia grew even more rapidly. Nvidia is transforming an industry, and valuation issues are secondary.
3. Nvidia's dividend is growing
Nvidia also announced a 150% increase in dividends in its earnings report. The dividend for the previous quarter was $0.04 per share, and the yield was 0.016%. After the increase, the new quarterly dividend is $0.01 per share and the yield is 0.04% when split. It's not expensive, but it lays the foundation for bigger payments in the future. Currently, management believes that reinvesting cash flow into the business is more valuable than paying dividends; this strategy has proven to be correct.

In summary, the stock split itself is only a superficial phenomenon, and its impact is limited. The real reason for buying Nvidia shares was the continued growth and potential of its business, not a split announcement. If you buy stocks now and benefit from a short-term increase due to the announcement, you'll benefit from it, but in the long run, the above three reasons are more influential.

*Purely personal opinion and sharing..