Nvidia (NASDAQ: NVDA) shares have soared over the past five years, even soaring above $1,000 in early 2024 as the company expanded its dominance in the artificial intelligence (AI) chip market, generating triple-digit revenue and profit growth quarter after quarter.
A stock price around or above $1,000 is not always accessible to every investor. Nividia realized this and launched a stock split in early June.
Stock splits lower a company’s price per share by issuing additional shares to current holders. However, these moves don’t fundamentally change a company, so they don’t actually make the stock cheaper. However, the lower price can still attract investors who weren’t willing to spend hundreds of dollars or more before the split.
As we enter the third month since the split, it’s fair to look at Nvidia’s year-to-date performance and consider whether this stock market darling can continue its ascent. Let’s look to history for some guidance.
Nvidia’s stock split
The company announced its plan to split its stock in May, when shares were trading at more than $900. After the announcement, they quickly rose past $1,000. The stock rose nearly 30% from the announcement date to the split on June 7. The 10-for-1 split ratio meant that the stock opened at around $120 on June 10.
Since then, Nvidia shares have seen some ups and downs, but overall they’re down about 4%. So we’re a far cry from the typical Nvidia performance we saw earlier this year and throughout 2023.
Where does Nvidia stock go next? History shows that in 2 of the previous 3 Nvidia stock splits, after the first three months following the split, the stock rose by double digits for the next two months. But in the case of the other split, the stock fell by double digits during that period.
To use this historical example, Nvidia’s performance months after a stock split has been mixed, but tends toward positive.
Now let’s look at broader data on stock splits. Generally speaking, in a study from 1980 to the present, companies that have split their stock have outperformed those that have split S&P 500according to a Statista report using Bank of AmericaData from the Research Investment Committee. Stocks that split posted average total returns of more than 25% in the 12 months following the announcement, twice the average return for the S&P 500 during that time, data show.
A potential boost for the stock
Why is that? The idea is that by lowering a stock price, more investors will flock to a stock, providing a boost. While this may be partly true, it is not the only element that investors look at. They will not buy a stock just because it completed a split.
In Nvidia’s case, investors have become concerned about growing competition in the AI ​​chip market, and concerns about the broader economy have also taken root. Economic uncertainty generally weighs on fast-growing companies like Nvidia because they rely on solid economic conditions to support their businesses. These factors, along with some profit-taking, have held Nvidia back recently.
As for what’s next, history tells us that Nvidia has a good chance of rising in the coming months if the stock follows historical patterns. But history doesn’t always repeat itself, so I wouldn’t buy Nvidia today to make a quick profit. The good news, however, is that Nvidia still has plenty of gas left in the tank to make long-term gains.
The company is about to launch its new Blackwell architecture and most powerful chip ever, and Nvidia promises to update its chips annually. This should boost revenue. Of course, some customers will opt for a cheaper chip from a competitor, or use some of Nvidia’s chips together with some of its competitors. But I don’t expect this to significantly affect Nvidia’s market share, as the biggest AI players generally want the best, fastest chip to power their projects.
All of this means that whether or not history is correct about Nvidia’s upcoming performance, you can still make a profit by buying shares of the chip giant today and holding for 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 has positions in and recommends Bank of America and Nvidia. The Motley Fool has a disclosure policy.
Should You Buy Nvidia 3 Months After Its Stock Split? Here’s What History Says was originally published by The Motley Fool
