Nvidia's upcoming stock split: What history says will happen
Nvidia shares have the tendency to continue running hot after a stock split.
Source: Shutterstock
KEY POINTS
- Nvidia to undergo 10-for-1 stock split on Friday, June 7
- Historically, Nvidia's stock splits lead to significant short-term gains, but mixed longer-term performance
- Wall Street remains highly bullish on Nvidia, citing its pivotal role in AI and strong revenue growth, with Bank of America setting a $1,500 target price
Nvidia's 10-for-1 stock split is set for Friday, June 7 and the pressing question for investors is whether this move will cause the share price price to rise or fall.
The stock split was announced as part of the company's first quarter results on 22 May, designed to make the stock "more accessible to employees and investors." Companies often split their shares to make them more affordable – instead of forking out US$1,200 for a single Nvidia share, they're now US$120 each.
A split does not change the company's value or market capitalisation but it does change the number of outstanding shares. In the case of a 10-for-1 split, Nvidia's shares outstanding will increase tenfold.
Nvidia's stock split history
Nvidia has undergone a total of five stock splits since inception. This includes:
27 June 2000: 2-for-1 split
12 September 2001: 2-for-1 split
7 April 2006: 2-for-1 split
11 September 2007: 3-for-2 split
20 July 2021: 4-for-1 split
If you bought one Nvidia share prior to 27 June 2000, you would have 48 Nvidia shares today.
Post split performance
Some investors believe that stock splits are a bullish development as the share price is now perceived as 'cheaper', with expectations that the price will run-up in the short term.
Let's take a look at how Nvidia performed after previous splits.
Source: Market Index
Here are some key takeaways from the above historic data:
One month post stock split performance is very bullish – up an average 16.2% and positive 100% of the time
Three and six month performances also have solid average returns and positive a majority of the time
The one and three year returns are firmly in the negative. It's interesting to see Nvidia announce stock splits after the Dot-Com Bubble and right before the Global Financial Crisis
Nvidia's performance since the 20 July 2021 split to date is 514%
Here's how it looks on a chart (red arrow for stock split period).
Nvidia monthly price chart (Source: TradingView)
Bullish earnings, bullish analysts
If everyone knows a stock is set to rise after a stock split ... will it still rise?
Unlike the events that unfolded during the prior splits, Nvidia's valuation has been supercharged by a streak of better-than-expected earnings and guidance upgrades. The latest first-quarter result (22 May) highlighted:
Revenue up 262% to US$26.0 billion and 5.4% ahead of consensus
Data centre revenue up 429% to $22.6 billion and 7.6% ahead of consensus
Gross margin up 1,217 bps to 78.9% and 184 bps ahead of consensus
Q2 revenue guidance of US$28 billion, up 107% year-on-year and 4.4% ahead of consensus
Wall Street is also incredibly bullish on the stock, with Bank of America reiterating a Buy rating and $1,500 target price earlier this week. "We reaffirm buy, top sector pick ... as Nvidia is best positioned to enabling the $3 trillion IT industry towards delivering AI services," the report said.
