Nvidia's Stock Splits: Historical Insights and Future Trends
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The Impact of AI on Nvidia's Stock Performance
The artificial intelligence (AI) craze has powered the stock market higher this year, and few companies have benefited from that more than Nvidia (NASDAQ: NVDA). The demand for AI-capable hardware has driven Nvidia's share price up by a remarkable 800% since the launch of ChatGPT in late 2022.
Nvidia emerged as the best-performing stock in the S&P 500 in 2023 and is poised to replicate that success in 2024. It is again leading the S&P 500, with gains year-to-date significantly surpassing those of its closest competitor, Vistra, by 34 percentage points.
Nvidia's Stock Split and Historical Performance
In May, Nvidia announced a 10-for-1 stock split to make stock ownership more accessible for both employees and investors. However, based on historical patterns, Nvidia shares may face declines in the months that follow.
Historically, stocks that undergo splits tend to outperform the S&P 500, at least in the short term. Since 2010, such companies have seen an average appreciation of 18% during the 12 months post-split announcement, outpacing the S&P 500, which has returned an average of 13% annually over the same period.
Applying this information to Nvidia indicates a potential downside of 12% through May of the following year, despite its 30% gain since the split announcement. The outlook worsens significantly when focusing on Nvidia's own stock performance.
Nvidia's Historical Trends After Stock Splits
Nvidia has executed five stock splits since its public debut at $12 per share in January 1999. Unfortunately for shareholders, these events often resulted in declines in the short term, as demonstrated by historical data.
Excluding the most recent split, the historical performance of shares following earlier stock splits showed a troubling trend:
Past Stock Split Performance
1. June 2000: 12-month return of 28%, 24-month return of -52%
2. September 2001: 12-month return of -72%, 24-month return of -49%
3. April 2006: 12-month return of 1%, 24-month return of -6%
4. September 2007: 12-month return of -70%, 24-month return of -53%
5. July 2021: 12-month return of -4%, 24-month return of 145%
Overall, Nvidia shares have an average decline of 23% during the 12 months following previous stock splits, with a slight recovery to an average loss of 3% over the subsequent 24 months.
Looking Ahead: Nvidia's High-Stakes Earnings Release
Nvidia is primarily recognized for its powerful graphics processing units (GPUs) which excel in various computational tasks, including rendering graphics and advancing machine learning algorithms. The company dominates the GPU market, commanding an impressive 98% share of data center GPU shipments last year. Moreover, its market share in AI processors ranges from 70% to 95% as per various assessments.
The company reported remarkable financial results in its fiscal first quarter, revealing a staggering 262% year-over-year revenue increase to $26 billion, fueled by an unprecedented demand for generative AI chips. Non-GAAP earnings surged by 461% to $6.12 per diluted share, exceeding Wall Street's expectations.
The second-quarter results are anticipated to be released soon, with analysts projecting revenue and earnings increases of 112% and 137%, respectively. This would mark the fifth consecutive quarter of triple-digit growth for both revenue and earnings.
The upcoming earnings report is set to be pivotal amidst high expectations. Options pricing indicates that Nvidia's stock may experience an 11% upward or downward movement in the trading session following the report due to the anticipated high stakes.
Investing in Nvidia: Considerations for Potential Investors
Before investing in Nvidia, it is important to weigh various factors in the current market climate.
While some analysts have recently highlighted alternative investment opportunities outside of Nvidia, the demand and growth surrounding AI technologies cannot be overlooked. Many consider Nvidia a leader in innovation and performance in this space.
Investors may choose to adopt a balanced approach to investing in Nvidia. This could necessitating commencing with a smaller investment to mitigate risks associated with potential volatility in stock prices. If the company experiences a drop in share value after earnings announcements, this may provide a further opportunity to consider increasing their stake.
Frequently Asked Questions
What factors have led to Nvidia's stock price surge?
Nvidia's stock price surge can be attributed to the increasing demand for AI-capable hardware, particularly due to the popularity of generative AI technologies.
What is the significance of Nvidia's stock split?
The 10-for-1 stock split aimed to make shares more accessible to both employees and investors, which often leads to increased stock liquidity.
How has Nvidia performed historically after stock splits?
Historically, Nvidia shares have shown a tendency to decline in value in the months following stock splits, with an average loss of 23% in the 12 months post-split.
What are analysts predicting for Nvidia's upcoming earnings report?
Analysts expect revenue and non-GAAP earnings to grow significantly, indicating strong company performance in the AI sector.
What should investors consider before buying Nvidia stock?
Investors should assess the overall volatility of Nvidia's shares and the potential for significant price movements post-earnings report.
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