Nvidia (NASDAQ: NVDA) has probably been the most watched stock in the world in recent months. That’s because the company dominates the artificial intelligence (AI) chip market, and rising sales have sent the shares soaring. In the first half, shares rose more than 150% – and that’s after rising more than 1,300% in the previous five years.
In fact, this momentum pushed Nvidia shares past the $1,000 threshold, a level that can be a psychological barrier for some investors—and in other cases, makes it difficult for retail investors to buy without relying on fractional shares. To that end, Nvidia recently launched a stock split to drive down the price of each individual share. Investors welcomed the news, and the stock soared nearly 30% from the split announcement through the actual operation.
Now, the big question is whether Nvidia’s momentum will continue after the split, and whether this top chip designer will rise in the second half. Let’s look to history for some answers.
Looking at historical patterns
First, it’s important to note that just because a pattern has occurred in the past, doesn’t guarantee that the same pattern will continue in the future. So any conclusions we draw can guide us — but they’re not set in stone. The market or a particular stock can surprise us.
That said, patterns repeat often enough to make them worth our consideration. They can give us an idea of what generally happens after a certain event, making us aware of the likely possibilities.
Let’s move on to the idea of stock splits and what history shows. A stock split, by issuing new shares to current holders, lowers the price of each individual share — but without changing the company’s market value or the stock’s valuation. So the operation has not fundamentally changed the specific company or stock.
But the split does accomplish one important thing: It opens up the investment opportunity to a wider range of investors. This is positive for you and me, because it makes it easier for us to invest in a company like Nvidia, and it’s positive for the company, because it gives it a whole new audience of potential investors. So it’s a win-win. Nvidia’s 10-for-1 stock split took the stock price from over $1,000 to around $125.
Stock splits, by themselves, are not catalysts for stock performance because they are merely mechanical actions. You wouldn’t buy a stock just because the company did a split. But as you can see in the chart below, history shows that stock splitters generally outperform the S&P 500 in the 12 months following the announcement of the stock split.
The chart shows that stock split companies generated an average total return of more than 25% in that 12-month period. That compares with less than 12% for the S&P 500 as a whole. This is based on bank of americaResearch Investment Committee data from 1980 to present.
Nvidia’s Previous Stock Splits
Now we can dig a little deeper by looking at Nvidia itself after its last two stock splits, in 2007 and 2021. After both, shares fell in the twelve months that followed – but first, shares rallied in the two to five months following the stock split operation. Nvidia shares rose more than 60% in the five months following the 2021 split and added about 17% in the six-week period following the 2007 split.
So, what does all this tell us about what could happen today? It’s important to keep in mind that Nvidia’s business has evolved tremendously since its previous stock splits. Then it mainly served the video game industry and gradually moved into other areas such as AI. Today, the fast-growing AI area is the company’s main business, making the stock significantly more attractive to investors. So Nvidia may have stronger momentum today than after previous splits — and that could allow for a lasting rally.
This could happen if Nvidia continues to report impressive earnings growth and hit product launch targets. And it’s looking promising. Nvidia has reported record revenue quarter after quarter and says demand for its upcoming Blackwell architecture and chip is outpacing supply. And speaking of Blackwell, this launch could be a positive catalyst for the stock as well.
All of this means that it’s entirely possible for Nvidia shares to skyrocket in the second half, thanks to the company’s leadership in a high-growth market and solid revenue outlook. And the best news is this: Even if history is wrong and Nvidia doesn’t recover in the coming months, this top stock still has what it takes to deliver big returns to investors over the long term.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Adria Cimino has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Bank of America and Nvidia. The Motley Fool has a disclosure policy.
After Nvidia Splits Stock and Gains 150% in the First Half, Will It Surge in the Second Half? Here’s What History Says. was originally published by The Motley Fool
