3 Reasons to Buy Nvidia After Its Stock Split and 1 Reason to Sell
One of the most anticipated stock market events just happened recently: Artificial intelligence (AI) chip giant Nvidia (NASDAQ: NVDA) completed a stock split, bringing down the price of its stock to about $120 from more than $1,200. The 10-for-1 split took place on June 7, and the stock began trading at its new price at the start of trading this week.
Now, with the stock trading at one-tenth of its former price, you may be wondering if you should get in on Nvidia. Before deciding, let's consider three reasons to buy and one reason to sell.
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Reason to buy: A lower share price offers you more flexibility
Nvidia's recent stock split means you only need about $120 to buy a share -- instead of $1,200 prior to the split. Of course, in pre-split days you could have purchased fractional shares to open a small position in Nvidia or add a bit to your current position. But certain brokerages don't offer fractional shares -- so it isn't as convenient as buying full shares.
All of this means that right now, at a lower per-share price, Nvidia offers you more flexibility. You can more easily buy or add to your position with a smaller budget. And if you eventually want to reduce your Nvidia position, you can do so in smaller increments.
The stock split itself isn't a reason to buy Nvidia: Instead, you'll want to invest in the company for fundamental reasons such as its earnings track record or long-term outlook. But the new per-share price makes it easier to access Nvidia with a limited investing budget -- making now a good time to get in on the stock.
Reason to buy: A new source of revenue growth is right around the corner
As mentioned, Nvidia's earnings already have taken off in a big way, and this momentum is far from over. Nvidia actually has a new source of revenue growth just ahead. The company is preparing to launch its Blackwell architecture fully loaded with six game-changing technologies -- including Nvidia's most powerful chip ever.
This new GPU is packed with 208 billion transistors, compared with 80 billion in the current Nvidia H100 GPU -- and this increase in transistors equals more processing power. Other features include advanced capabilities to protect data and an AI-based maintenance system to predict potential issues and avoid system downtime.
Customers already are lining up to get their hands on Blackwell, and Nvidia recently said demand is outstripping supply. And Nvidia expects this trend to continue into next year.
All of this means that Nvidia's recent trend of reporting record quarterly data center revenue could continue, boosted by demand for Blackwell.
Reason to buy: the promise of annual innovation
Finally, another reason to like Nvidia has to do with its focus on innovation. Blackwell is just ahead, but the company won't rely on this game-changing new system for long.
Nvidia has promised a "one-year rhythm" of innovation, meaning the company will release a higher-performance GPU every year.
This is key because it may be the one element that keeps Nvidia ahead of rivals. Players like Intel and Advanced Micro Devices recently released new chips, and in certain cases, these may outperform Nvidia's current H100.
But that's not a problem for Nvidia, because only a few months later the company will launch an even stronger GPU -- and this should be the scenario year after year.
Reason to sell: lackluster performance after past stock splits
Nvidia's recent stock split wasn't the company's first. The tech giant completed five prior to this one, and following the past three, the stock spent some time in the doldrums. So, history shows us that Nvidia's stock traditionally hasn't performed well following stock splits.
If Nvidia's stock follows the same path this time around, Nvidia shareholders may face a few months of disappointing returns. That means some, especially those who have held Nvidia for years and gained a lot, may consider selling and locking in profits.
Should you buy or sell Nvidia?
In my opinion, the arguments for buying Nvidia stock right now outweigh the argument for selling. Yes, Nvidia shares -- if they follow the historical trend -- may not take off right away. But this is a short-term issue. Over time, Nvidia has what it takes to continue climbing: leadership in a growth market, commitment to innovation that should ensure its leadership, a great earnings track record, and encouraging long-term prospects.
All of this means that, even if Nvidia slips or stagnates in the coming months, it's not reason to worry. The future looks bright for this AI champion, and that's why the stock makes a great buy right now.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.