Nvidia's 10-for-1 Stock Split: Perfect Timing to Buy Before the Next Support Level Dip?

Nvidia's 10-for-1 Stock Split: Perfect Timing to Buy Before the Next Support Level Dip?

Unveiling the strategic moment to invest in Nvidia post-split — What you need to know to capitalize on the uptrend!

Nvidia recently unveiled a significant corporate strategy by announcing its first-quarter earnings along with a 10-for-1 stock split. This strategic move will come into effect on June 10, whereby every share held by an investor will be transformed into ten shares, although the total market value of their holdings remains the same. This announcement was met with enthusiastic approval from the market, illustrated by a 7% increase in Nvidia’s stock price at the market opening the next day. The stock price breached the $1,000 mark per share, a significant milestone. Over the previous year, Nvidia's stock has seen an extraordinary rally, with an increase of 243%, vastly outstripping the S&P 500’s gain of around 14% in the same timeframe. This growth has been bolstered by Nvidia’s strong financial performance and innovations in technology sectors like artificial intelligence and gaming.

We cannot ignore the psychological allure of stock splits for investors. Many investors prefer holding more shares at a lower price per share, perceiving it as a better deal, even though the total value of their investment remains unchanged. For instance, people would rather buy 16 shares at $20 each than four shares at $80 each, showcasing the psychological comfort derived from a larger number of shares. I have noticed that stock splits are often accompanied by robust financial performance and might signal the company’s positive outlook on future earnings. This could be a strategic move to attract more retail investors and signal that the company is poised for further growth, thus boosting investor confidence.

Despite the market excitement they often generate, it's crucial to remember that stock splits do not alter the fundamental economic value of a company. They merely adjust the number of outstanding shares and the share price proportionally. For instance, in Nvidia’s upcoming 10-for-1 stock split, an investor owning one share worth $1,000 pre-split will hold ten shares priced at $100 each post-split. This rearrangement does not affect core financial indicators such as earnings per share, price-to-earnings ratios, or dividend yields. The day after the split, an investor’s portfolio will reflect only the changed number of shares and adjusted share price, with no alteration in the overall value.

The widespread availability of fractional shares trading today lessens the impact of stock splits compared to the past. Nearly all major online brokerages now allow the purchase of fractional shares, enabling investors to buy into high-value stocks like Nvidia in increments as small as $10, regardless of the actual share price. This accessibility means that the decision to invest should be driven by solid fundamentals and growth prospects of the company, rather than the optical increase in share quantity. An investor's focus should thus remain on the company’s financial health, market position, and potential for future growth, which are the true determinants of investment value.

Nvidia’s recent financial results have been nothing short of spectacular, consistently exceeding analyst projections and market expectations. In its most recent quarterly report, the company announced a staggering 262% year-over-year increase in revenue, marking its third consecutive quarter where growth exceeded 200%. These results demonstrate Nvidia's dominance and innovative capabilities in the rapidly evolving tech industry. However, it is essential for investors to remember that past performance is not a reliable indicator of future outcomes. When considering adding Nvidia or any stock to their portfolio, investors should carefully assess the company’s ability to sustain this growth momentum and expand its business operations, which will be critical for future earnings and stock performance.

 This begs the next question : Is this a bubble?

I do not think so. A bubble has two important characteristics. Firstly, the value of the asset in question usually rises without the fundamental economic factors to support such an increase. Secondly, there's often a rush of investors purchasing the asset without a deep understanding of it—simply because others are buying in.

However, I don't observe these characteristics with Nvidia.

Investors seem well-informed about Nvidia's operations and are investing for sound reasons.

Why is this happening? We're experiencing a monumental shift in technology infrastructure driven by generative AI, which relies heavily on Nvidia’s chips. No other company comes close to matching Nvidia's technological capabilities. While it's worth discussing potential competition from Amazon and Apple as they develop their AI chips, Nvidia is operating on a much larger scale and is significantly ahead.

"People want to deploy these data centers immediately," Nvidia CEO Jensen Huang stated in a recent exclusive interview with Yahoo Finance's Julie Hyman and Dan Howley, following the earnings announcement. "They are eager to utilize our graphics processing units right away to start generating and saving money. The demand is incredibly strong."

Will Nvidia continue to grow its revenue and profits by triple digits? Unlikely, but its growth rates are expected to remain outstanding and outpace its competitors.

Will I buy it Now?

Certainly but not at current price. Nvidia's stock price has been on a strong upward trend, and I'm interested in purchasing shares once it pulls back to a support level. This company has exceptionally strong economic moats that are very difficult to disrupt.