The artificial intelligence (AI) craze has propelled the stock market higher this year, and few companies have benefited more than Nvidia (NASDAQ: NVDA)In the months since ChatGPT launched in November 2022, sparking a wave of demand for AI-enabled hardware, the chipmaker’s stock price has surged 800%.
Nvidia was the best performing stock of the S&P 500 in 2023, and could repeat that performance in 2024. It is once again leading the S&P 500, and its year-to-date gains exceed those of the second-place See by 34 percentage points.
In May, Nvidia announced a 10-for-1 stock split and completed it in June to “make stock ownership more accessible to employees and investors.” But based on historical trends, Nvidia shares could decline in the coming months.
Historically, stocks resulting from stock splits have outperformed the S&P 500
Stocks that split in two typically outperform the S&P 500, at least temporarily. Since 2010, shares of such companies have risen an average of 18% in the 12 months following the announcement of their stock split, according to Bank of AmericaAt the same time, the S&P 500 has posted an average annual return of 13% over the same period.
We can apply this information to Nvidia to speculate on its future performance. Specifically, its shares are up 30% since Nvidia announced in May that a stock split was going to happen. So, based on general averages, that leaves an implied decline of 12% through May 2025. However, the outlook is considerably bleaker when using company-specific data.
Historically, Nvidia stock has performed poorly following stock splits.
Prior to the most recent one, Nvidia has had five stock splits since going public at $12 per share on January 22, 1999. Generally speaking, these events have been bad news for shareholders in the short term, as detailed in the table below.
|
Stock split date |
12 month performance |
24 month return |
|---|---|---|
|
June 2000 |
28% |
(52%) |
|
September 2001 |
(72%) |
(49%) |
|
April 2006 |
1% |
(6%) |
|
September 2007 |
(70%) |
(53%) |
|
July 2021 |
(4%) |
145% |
|
Average |
(23%) |
(3%) |
Data source: YCharts.
Nvidia shares fell an average of 23% in the 12 months following the last stock splits, and shares were still down an average of 3% 24 months later.
The chipmaker completed its last split after the market close on June 7, and shares began trading at an adjusted price of $120.37 on June 10. The stock has returned 2% since then, leaving it with an implied downside of 25% through June 2025 and an implied downside of 5% through June 2026.
Past performance is never a guarantee of future results, but investors should be especially careful when extrapolating historical data in this situation. I say this because most of Nvidia’s past stock splits have occurred within 12 months of a recession, and all have occurred within 24 months of a recession. Few stocks generate positive returns during an economic downturn.
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