NVDA
The buzz around Nvidia (NASDAQ: NVDA) has been impossible to ignore recently. This tech titan, a dominant force in the AI chip sector, has seen its stock surge dramatically. Over the year's first half, Nvidia shares skyrocketed by over 150%. Such a meteoric rise is even more impressive when the stock had already leaped more than 1,300% over the previous five years. This powerful momentum pushed Nvidia's stock price past the $1,000 mark, which can be intimidating for some investors and challenging for smaller ones who might prefer to avoid fractional shares.
To address this, Nvidia implemented a stock split to make its shares more accessible. The market responded positively, and the stock gained nearly 30% from the split's announcement through its execution. The pressing question for stock traders is whether Nvidia can maintain its upward trajectory in the latter half of the year. What does historical precedent suggest?
History often provides valuable insights, although it's essential to remember that past performance doesn’t guarantee future results. Analyzing historical trends can help us gauge potential outcomes and prepare for various scenarios.
Stock splits mechanically reduce the price per share by issuing additional shares to current holders without altering the company's overall market value or valuation. This doesn't change the core fundamentals but does broaden investor accessibility to the stock. This is a very favorable development for long-term investors like us as it welcomes a broader array of potential buyers, benefiting both Nvidia and its shareholders.
The recent 10-for-1 stock split cut Nvidia’s stock price from over $1,000 to approximately $125. While a split isn’t a catalyst for growth, data shows that companies undergoing stock splits often outperform the broader market in the subsequent year. Specifically, companies that have conducted splits have historically achieved an average total return of over 25% in the following 12 months, compared to less than 12% for the S&P 500, based on data from 1980 to today.
A closer look at Nvidia's previous stock splits in 2007 and 2021 reveals mixed outcomes. Post-split, the stock initially surged—gaining over 60% in the five months following the 2021 split and approximately 17% in the six weeks after the 2007 split—before declining within the year. However, Nvidia's business today is markedly different. What was once a company significantly tied to video gaming is now a leader in the burgeoning AI industry.
In the current landscape, Nvidia's prospects in AI add a significant growth catalyst that didn't exist to the same extent during previous splits. While history might give us a hint, the company's solid fundamentals and market leadership in AI provide confidence that even if Nvidia doesn't soar in the immediate future, it remains a solid long-term investment.
