Should You Buy Nvidia 3 Months After Its Stock Split? Here's What History Says.
Nvidia (NASDAQ: NVDA) stock has roared higher over the past five years, even soaring past $1,000 early in 2024. This occurred as the company built its dominance in the artificial intelligence (AI) chip market, generating triple-digit revenue and profit growth, quarter after quarter.
A stock price around or past the $1,000 mark isn't always accessible for every investor. Recognizing this, Nividia launched a stock split in early June.
Stock splits lower the per-share price of a company's stock through the issuance of additional shares to current holders. These moves don't change anything fundamental about a company, though, so they don't actually make the stock cheaper. However, the lower price still may attract investors who weren't ready to shell out hundreds of dollars or more prior to the split.
Now, as we head into the third month after the split, it's fair to take a look at Nvidia's performance so far and consider whether this stock-market darling can keep on soaring. Let's look to history for some help.
Nvidia's stock split
The company announced the plan to split its stock back in May, when shares were trading for more than $900. After the announcement, they quickly climbed past $1,000. The stock went on to gain nearly 30% from the announcement date through the split on June 7. The 10-for-1 split ratio meant the stock opened at about $120 on June 10.
Since that time, Nvidia's shares have experienced a few ups and downs, but overall, they've lost about 4%. So we're far from the typical Nvidia performance we saw earlier in the year and throughout 2023.
Where are Nvidia shares heading next? History shows us that in 2 of the 3 previous Nvidia stock splits, after the first three months post-split, the stock went on to climb in the double digits over the next two months. But in the case of the other split, the shares fell in the double digits during that period.
Just using that historical example, Nvidia's performance months after a stock split has been mixed, but leaning toward positive.
Now let's consider broader data regarding stock splits. Overall, in a study from 1980 through today, companies that have split their stock have outperformed the S&P 500, according to a Statista report using Bank of America's Research Investment Committee data. Stocks that split posted an average total return of more than 25% in the 12 months following the announcement, twice the average return for the S&P 500 during that time, data shows.
A potential boost for the stock
Why is that the case? The idea is that by lowering a stock price, more investors will flock to a stock, offering a boost. While this may be partly true, this isn't the only element investors look at. They won't buy a stock just because it completed a split.
In the case of Nvidia, investors have started to worry about growing competition in the AI chip market, and concerns about the broader economy have taken root, too. Economic uncertainty generally weighs on high-growth 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 in recent times.
As for what's ahead, history tells us Nvidia has a good chance of advancing 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 gain. The good news, though, is Nvidia still has plenty of gas in the tank to deliver gains over the long term.
The company is about to launch its new Blackwell architecture and most powerful chip ever, and Nvidia promises to update its chips on an annual basis. This should keep revenue roaring higher. Of course, some customers will opt for a rival's lower-priced chip or use some of Nvidia's along with some of the rival's. But I don't expect this to significantly cut into Nvidia's market share, as the biggest AI players generally want the best and fastest chip around to power their projects.
All of this means that whether history is right about Nvidia's upcoming performance or not, you still could win by buying shares of the chip giant today and holding on for the long haul.
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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