At first glance, Nvidia (NVDA +1.65%) shares may look a lot more reasonably priced to you these days. Following the recent stock split, they now trade for about $135. That's compared to more than $1,200 prior to the split.
When a company splits its stock, it issues more shares to current holders, which lowers the price of that particular stock. This opens up the investment opportunity to a wider range of potential buyers.
Companies generally decide on a stock split after their shares have climbed quite a bit and often to levels that may be too high for certain investors. In some cases, investors want to make a small purchase and might not have access to fractional shares or may prefer buying full shares. In other cases, a level like $1,000 a share represents a psychological barrier, as some investors consider the stock too pricey -- even if its valuation looks just fine.
Speaking of valuation, you may be wondering if Nvidia is cheaper than it used to be following its stock split at its new per-share price. Or is it more expensive? Keep reading to find out.
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Nvidia's 10-for-1 stock split
First, here's a quick summary of the Nvidia stock split. The company launched a 10-for-1 split on June 7, so if you owned one share at that time, you were issued an additional nine after the market close. The stock began trading at the split-adjusted price on June 10. Nvidia said it did this to make its stock more accessible for its employees, as well as other investors.
Investors welcomed the stock split, driving a 27% gain for Nvidia shares from the announcement in late May through the actual day of the split. And the shares have continued to climb, advancing 12% since the stock split.
All of this has resulted in a sharp increase in Nvidia's valuation. The stock today is trading for 50x forward earnings estimates, up from about 30 a little more than a month ago. Even though Nvidia's per-share price may seem more attractive right now, the stock actually is more expensive than it was when it was trading for more than $1,000 a share.
This is because stock splits are purely mechanical movements that don't change the total market value or anything fundamental about the company. If Nvidia's stock had remained unchanged from the announcement of the stock split all the way through today, the stock wouldn't be more expensive or cheaper right now. Its valuation would have stayed put.
Since the stock advanced, though, the valuation has increased -- making the $135 Nvidia share more expensive than a month ago's $1,000 share.
NASDAQ: NVDA
Key Data Points
Should you buy Nvidia at today's price?
The next question is: Has Nvidia gotten too expensive?
Though Nvidia is pricier than it was a short time ago, the recent run-up wouldn't discourage me from buying and holding this player for the long term. Nvidia is the world's leading artificial intelligence (AI) chip designer, holding 80% share. This has helped the company generate triple-digit earnings growth over the past several quarters.
But the even better news is there's reason to be confident about Nvidia's growth continuing. The company's next catalyst is right around the corner, with the launch of the potentially game-changing Blackwell architecture and the most powerful chip yet later this year. After this, Nvidia aims to update its chips on an annual basis, suggesting the company has what it takes to stay ahead of the competition year after year.
Nvidia also can continue to succeed over time because it's not depending solely on its chips, the key product powering AI tasks, but also offers customers a whole suite of products and services for AI development. And the company is showing its leadership by being the first to benefit from new AI growth areas, like sovereign AI. Nvidia says sovereign AI, which delivered zero revenue last year, may bring in billions of dollars this year.
Finally, it's important to keep in mind that the AI market is still in its early days, with analysts predicting growth to more than $1 trillion later this decade.
All of this means that even though Nvidia stock is more expensive today than it was prior to its stock split, it's still worth the investment -- and could continue rewarding investors as it roars higher over time.
