(MENAFN- ValueWalk) Last week, Semiconductor company NVIDIA (NASDAQ:NVDA) received a slew of price-target upgrades from Wall Street analysts after a strong earnings report.
However, the chipmaker's stock price will soon be changing quite dramatically, as it announced a 10-for-one stock split. That means the entry price for one of the best-performing Stocks on the market just got a lot cheaper.
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10-for-one stock split
Why NVIDIA is splitting its stock
Should you buy NVIDIA stock?
10-for-one stock split NVIDIA has been an absolute juggernaut in recent years, as its AI-enabled graphics processing unit (GPU) chips have facilitated the AI boom. Over the past 12 months, NVIDIA stock has soared an astounding 186% to roughly $1,120 per share.
Just five years ago, NVIDIA was trading at only $33 per share on May 28, 2019. Over the past five years, it has averaged an annualized return of 98% to reach its current $1,120 share price.
Investors who bought NVIDIA in 2019 have been very pleased, to say the least. If you had bought 20 shares of NVIDIA in 2019 at $33 per share , that initial $660 investment would now be worth about $200,000, and that includes a four-for-one stock split in 2021.
More recently, NVIDIA stock may have gotten increasingly out of reach for a lot of investors as it skyrocketed higher and higher, that's about to change.
When enacting the recently announced 10-for-one stock split , NVIDIA will be lowering its per-share price by a factor of 10. In other words, at the close of the market on June 6, one share will turn into 10 shares of NVIDIA stock.
Thus, each NVIDIA shareholder on that date will automatically receive nine additional shares as the stock price is slashed by a factor of 10. For example, if the share price is $1,200 on June 6, each share would be worth $120 following the stock split.
Investors with one share priced at $1,200 would then have 10 shares, while investors who had 20 shares at $1,200 would then have 200 shares worth $120 each.
NVIDIA will start trading at its new split price when the market opens on June 10.
Why NVIDIA is splitting its stock
A stock split doesn't change the overall value of a company, but it does make the individual shares more accessible to more investors because of the lower price. Currently, an investor who only has $1,000 to invest initially would not even have enough for one share at the current price and thus would probably look elsewhere - even though they could buy fractional shares.
However, at $120 per share or somewhere around there, NVIDIA stock becomes a much more attractive proposition for an investor who wants to tap into the next phase of the company's growth.
NVIDIA management pointed this out in the recent earnings report , explaining that the split makes“stock ownership more accessible to employees and investors.” The chipmaker also raised its quarterly dividend by 150% from 4 cents per share to 10 cents per share, although after the stock split, the dividend will be 1 cent per share.
Should you buy NVIDIA stock?
A key question for investors is whether to buy NVIDIA stock before or after the split. That's a personal decision, and you are still buying the same great company, which is the dominant leader in its space with a ton of upside as AI computing is still in the early stages.
In its fiscal first quarter, NVIDIA posted a record $26 billion in revenue, up 232% year over year, while its net income soared 628% to $14.9 billion. Looking ahead, NVIDIA's revenue is expected to be around $28 billion in Q2.
In other words, there is never a bad time to buy a stock as good as NVIDIA with such huge growth potential. However, it's pretty common for stock prices to surge after a split as a whole new influx of investors come in, so that might be something to keep in mind.
NVIDIA has also surged recently following the latest earnings report, so investors should keep the price-to-earnings ratio in mind when deciding when to buy or add to a position.
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