This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Nvidia (NASDAQ: NVDA) has risen to become a nearly $1,000 stock again, which is usually a threshold where investors start to expect a stock split. While there's no hard and fast rule about when to expect a split (some companies never do), history tells us that Nvidia could be considering one now.
Additionally, May 22 may be the day that one is announced, which is right around the corner. The last time Nvidia announced a stock split, the stock went wild and rose significantly. So, should you buy ahead of this potential announcement?
The last stock split was announced at a similar time in 2021
The last time Nvidia enacted a stock split was on July 20, 2021. That four-for-one split broke each Nvidia share into four separate pieces, thus increasing the share count fourfold and cutting the stock price to 25% of its original value. Without this split, Nvidia's stock would be around $3,600 today.
However, the timing of this last split announcement sets the stage for a potential announcement on May 22 during its first-quarter fiscal year 2025 earnings release. In its Q1 fiscal year 2022 earnings release (which occurred on May 26, 2021), Nvidia announced to shareholders that the board of directors agreed to split the stock. This is perfect timing, as the annual meeting of stockholders was set to occur only a few weeks later so that shareholders could approve the vote. At that time, Nvidia was trading at around $600, so the stock is far more expensive today than when it decided to split its stock.
With the stage set for nearly the same scenario three years later, I would not be surprised if Nvidia announced a stock split on May 22. The question is, will it ignite a run-up like it did last time? After Nvidia's Q1 results were announced, up until the stock split date, the stock went on an impressive tear.
With the stock rising 30% in the days after the stock-split announcement, who wouldn't want to get ahead of that movement? However, investors should not expect that kind of reaction again.
Should Nvidia's stock increase by 30% from current levels, its market cap would increase from $2.3 trillion to roughly $3 trillion. That would allow Nvidia to surpass Apple as the second-largest company in the world and put it within striking distance of Microsoft as the largest company in the world.
I doubt that a stock-split announcement will create nearly $700 billion in value. Fortunately, there are other reasons to buy the stock.
Nvidia's growing business is driving the stock price higher
While the threshold where companies split their stocks differs for each business, the reason remains the same: Their stock price has gotten too expensive. This occurs because the business is succeeding -- a great problem to have.
Nvidia's business has been on fire lately, with its graphics processing units (GPUs) selling at an unbelievable pace to satisfy the demand for data centers built to power the artificial intelligence (AI) arms race.
Any stock movement from a potential stock-split announcement should be attributed to its GPU business, as it's the driving force behind the stock. With management guiding investors for Q1 revenue of about $24 billion (indicating 234% growth), we're slated to see a monster quarter reported again.
While a stock-split announcement may be coming, investors should look beyond that to determine if Nvidia is a potential buy (or not).
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
