Nvidia stock is up 30% since the announcement of the 10-for-1 stock split. History says this is what will happen next.
The hype surrounding artificial intelligence (AI) has driven the stock market higher this year, and few companies have benefited more than NVIDIA (NASDAQ: NVDA)In the months since ChatGPT launched in November 2022, which sparked a tidal wave of demand for AI-enabled hardware, the chipmaker’s share price has risen 800%
Nvidia was the best performing stock in S&P500 in 2023, and it could deliver a repeat of that performance in 2024. It again leads the S&P 500, and its year-to-date gains exceed those of the runner-up Vistra by 34 percentage points.
Nvidia announced a 10-for-1 stock split in May and completed it in June to “make stock ownership easier for employees and investors.” However, based on historical patterns, Nvidia’s stock price could fall in the coming months.
Historically, stock splits have outperformed the S&P 500
Stocks that split tend to outperform the S&P 500, at least temporarily. Since 2010, shares of such companies have gained an average of 18% in the 12-month period following their stock split announcement, according to Bank of AmericaThe S&P 500 achieved an average annual return of 13% over the same period.
We can apply this information to Nvidia to speculate on its future trajectory. Notably, shares have risen 30% since Nvidia announced an upcoming stock split in May. So, based on broad averages, that gives us an implied downside risk of 12% through May 2025. However, the outlook is considerably worse when we use company-specific data.
In the past, Nvidia shares have performed poorly after stock splits
Prior to the most recent split, Nvidia had conducted five stock splits since its IPO on January 22, 1999 at a price of $12 per share. In general, these events were bad news for shareholders in the short term, as the following table shows in detail.
|
Date of stock split |
12-month return |
24-month return |
|---|---|---|
|
June 2000 |
28% |
(52%) |
|
September 2001 |
(72%) |
(49%) |
|
April 2006 |
1% |
(6%) |
|
September 2007 |
(70%) |
(53%) |
|
July 2021 |
(4%) |
145% |
|
Average |
(23%) |
(3%) |
Data source: YCharts.
In the 12-month periods following previous stock splits, Nvidia shares saw an average decline of 23%, and 24 months later, the average decline was still 3%.
The chipmaker completed its most recent split after the market closed on June 7, and shares were trading at a split-adjusted price of $120.37 on June 10. Since then, the stock has returned 2%, leaving it with 25% implied downside risk to June 2025 and 5% implied downside risk to June 2026.
Past performance is never a guarantee of future results, but investors should be especially cautious when extrapolating historical data in this situation. I say this because most of Nvidia’s previous stock splits occurred within 12 months of a recession, and all of them occurred within 24 months of a recession. Few stocks produce positive returns during economic downturns.
Nvidia’s second-quarter earnings release will be a high-stakes event
Nvidia is best known for its graphics processing units (GPUs), powerful chips that can perform many types of calculations faster and more efficiently than central processing units (CPUs). GPUs are particularly well-suited to computational tasks such as rendering graphics, training machine learning models, and running artificial intelligence (AI) applications.
Nvidia dominates these markets. The company accounted for 98% of data center GPU shipments last year, according to a study by analysts at TechInsights, and its market share in AI processors is between 70% and 95%, according to analysts. But the company is really impressive because it offers a full-stack computing platform that includes hardware, software, and services. This makes Nvidia a one-stop shop for AI.
The company reported stellar financial results in the first quarter of fiscal 2025 (which ended April 28). Revenue rose 262% year over year to $26 billion, driven by unprecedented demand for generative AI chips and networking hardware. At the same time, non-GAAP earnings rose 461% to $6.12 per diluted share. These numbers handily beat Wall Street estimates.
The company will report second-quarter results on August 28, and Wall Street expectations are huge. Analysts expect revenue and non-GAAP earnings to increase by 112% and 137%, respectively. That would make the second quarter the fifth consecutive quarter of triple-digit percentage growth in revenue and earnings. In addition, management will likely address rumors that shipments of the next-generation Blackwell GPUs will be delayed.
The combination of high expectations and uncertainty surrounding Blackwell GPUs means that the upcoming earnings release will be a high-stakes event for Nvidia shareholders. In fact, option pricing data suggests a price move of 11%, meaning the data suggests the stock price could rise or fall by that amount in the trading session following the report.
This puts investors in a difficult position. Would it be wiser to buy shares now and risk losses, or buy shares later and risk missing out on gains? The most sensible thing to do would be to split the difference. Investors interested in adding Nvidia shares to their portfolio can buy a small position today, assuming they are OK with the volatility. Then, if shares fall significantly after the earnings release, they can consider adding to their position.
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Bank of America is a promotional partner of The Ascent, a Motley Fool company. Trevor Jennewine has a position in Nvidia. The Motley Fool has a position in Bank of America and Nvidia and recommends these companies. The Motley Fool has a disclosure policy.
Nvidia stock has risen 30% since the announcement of the 10-for-1 stock split. History says this is what will happen next. was originally published by The Motley Fool
