Nvidia (NASDAQ: NVDA) has probably been the most watched stock on the planet in recent months. That’s because the company dominates the artificial intelligence (AI) chip market, and its rising revenue has pushed the stock higher. In the first half of the year, shares have climbed more than 150%, after already gaining more than 1,300% over the previous five years.
In fact, this dynamic has pushed Nvidia stock past the $1,000 threshold, a level that can pose a psychological barrier for some investors – and in other cases, make it difficult for small investors to buy without use split shares. So Nvidia recently launched a stock split to lower the price of each individual stock. Investors welcomed the news, and the stock rose nearly 30% from the announcement of the split to the deal itself.
Now, though, the big question is whether Nvidia’s momentum will continue after the split and whether this top chip designer will soar in the second half of the year. Let’s look at history for some answers.
A look at historical trends
First, it is important to note that just because a certain pattern has occurred in the past does not mean that the same pattern will continue in the future. So, any conclusions we draw can guide us – but they are not set in stone. The market or a particular stock can surprise us.
That said, the patterns recur frequently enough that they deserve our attention. They can give us an idea of what typically happens after a certain event, making us aware of likely possibilities.
Let’s move on to the idea of Stock distribution 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 market value of the company or the valuation of the stock. Thus, the transaction has not fundamentally changed anything about the company or stock in question.
But the split accomplishes a major goal: it opens up investment opportunities 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 situation. Nvidia’s 10-for-1 stock split sent the stock price down more than $1,000 to around $125.
Stock splits themselves, since they are simply mechanical transactions, are not catalysts for stock performance: you wouldn’t buy a stock simply because the company initiated a split. But, as you can see in the chart below, history shows that stock split participants tend to outperform the S&P 500 in the 12 months following the stock split announcement.
The chart shows that companies that did a stock split generated an average total return of more than 25% during this 12-month period. This figure compares to less than 12% for the entire S&P 500. This figure is based on Bank of AmericaData from the 1980 Research Investment Committee…
Discover more from The Times Of Update
Subscribe to get the latest posts sent to your email.