Should you buy Nvidia stock before June 6?

The time has come: NvidiaIt is (NASDAQ:NVDA) The long-awaited first quarter report capped an exciting earnings season for artificial intelligence (IA) investors.

Indeed, revenues are booming thanks to growing demand for Nvidia’s H100, A100 and Blackwell graphics processing units (GPU). Even better? The company’s pricing power helps Nvidia achieve consistent margin expansion and profitability.

Nvidia is currently riding a unique growth wave. Their earnings report contains so much information that it’s easy to get distracted by the latest record the company released.

While the financial performance was undoubtedly impressive, one part of the earnings report really caught my attention: Nvidia announced a 10-for-1 stock split.

According to the earnings release, investors holding Nvidia shares as of market close on June 6 will be eligible for the split-adjusted shares.

Let’s break down how the stock split works and explore why acquiring Nvidia stock now might be a good idea.

How does stock split work?

Stock splits are a form of financial engineering. When a company splits its shares, two important things happen.

First, the number of shares outstanding increases according to the ratio proposed during the split. Second, as the number of shares outstanding increases, the stock price decreases by the same ratio.

If Nvidia’s 10-for-1 split were to go into effect today, everyone who owns Nvidia stock would receive nine additional shares for every share they own. But at the same time, your average cost per share would be reduced by a factor of 10.

Since the number of shares and the stock price vary in the same ratio, Nvidia’s market capitalization theoretically remains unchanged.

However, this is rarely the case. Let’s take a look at Nvidia’s stock split history.

Has Nvidia already split its shares?

Nvidia has completed five stock splits since its IPO. The last time Nvidia split its shares was on July 20, 2021.

The chart below illustrates Nvidia stock’s movements 30 days after completing its 4-for-1 split in July 2021.

The last time Nvidia split its shares, investors enjoyed a nearly 12% return in just one month after the split. As of the end of December 2021, Nvidia stock was up 58% since the day of its split in July.

Is now a good time to buy Nvidia stock?

Generally speaking, trading activity increases when a company does a stock split. The reason is that even though the split does not in itself change the company’s valuation, the shares are perceived to be cheaper.

The story continues

In other words, since a split lowers the stock price, many investors think the stock is on sale and take advantage of a cheaper price. This is not the case, and it’s all psychological.

Today, with Nvidia stock trading at over $1,000 per share, it’s likely that many retail investors view the stock as expensive. But keep in mind that even if the post-split price of Nvidia stock…