Nvidia has announced a 1:10 stock split plan.
Stimulated by the unexpected financial report, Nvidia's stock price broke through $1000 for the first time in history on Thursday local time. In the past five years, the company's stock price has increased by 25 times (previously reinstated, the same below).
Nvidia plans to split shares at a ratio of 1:10 after the closing on June 7th. The company stated that a stock split will make it easier for employees and investors to purchase stocks.
Nvidia's last stock split was in 2021, when it issued 3 new shares per share (split 1-4). In May 2021, Nvidia announced plans for a 1:4 stock split. At that time, Nvidia's stock price was around $600, and before the split took effect, Nvidia's stock price rose as high as $835. After the stock split, as of the latest update, Nvidia's stock price has risen by over 450%.
Analysts believe that investors tend to react positively to stock splits, which is more of a psychological phenomenon rather than rooted in any fundamentals. For investors, splitting can attract more buyers, increase liquidity, and lower prices can also psychologically make them feel cheap, even though the basic value of the company has not changed. Analysts believe that Nvidia's stock split may drive up the stock price of chip manufacturers in the short term and boost the already enthusiastic investor sentiment.
From the data, companies that announce stock splits often perform better than the market. According to an analysis by the Global Research Center of Bank of America in February, data since 1980 shows that companies that announced stock splits in the S&P 500 index have performed significantly better than the index in the first 3, 6, and 12 months after the initial announcement. The stock price of companies that announced stock splits has increased by an average of 25.4% over the past 12 months, while the S&P 500 index has increased by an average of 11.9% over the same period.
However, stock splits may not necessarily drive up stock prices.
On July 18, 2022, Google conducted a stock split, splitting one share into 20 shares. Google's cumulative increase since this stock split is about 60%.
On March 9, 2022, Amazon announced the split of 1 share into 20 shares and the ex dividend on June 6, 2022. Since the stock split, Amazon has risen by approximately 50%.
On August 25, 2022, Tesla split one share into three ex shares, but since the split, Tesla has fallen by about 40%. This is not Tesla's first stock split. Earlier, Tesla conducted a stock split into 5 ex shares on August 31, 2020. After this stock split, Tesla rose by over 150% in just over a year.
The more influential stock split is Apple. In June 2014, Apple carried out a split of 7 shares, with the stock price dropping from over $600 to over $90, followed by a magnificent bull market that surged nearly fivefold. On August 31, 2020, Apple once again implemented the operation of splitting one share into four shares. However, since the second split, Apple's stock price has not performed as well as last time, with only about 30% increase so far.
According to S& According to Howard Silverblatt, Senior Index Analyst at the Dow Jones Industrial Average, since 2020, The S&P 500 company has executed 31 stock splits, far below the levels of the early 2000s and late 1990s.
For Nvidia, the greater significance of its stock split may lie in making it easier for the stock to be included in the blue chip Dow Jones Industrial Average (DJIA), a price weighted index. Splitting the stock would lower Nvidia's price to around $100, second only to Merck, ranked 20th, and comparable to Disney and 3M. After Amazon's stock split in 2022, there were similar speculations about being included in the Dow. What really has a positive implication for investors is that Apple was included in the Dow in March 2015, less than a year after its first stock split.
Analysts believe that Nvidia has all the necessary conditions to ultimately become a constituent stock of the Dow: a good reputation, a history of sustained growth, investor interest, and its industry representation in a wider market.
Nvidia's performance has driven many Wall Street analysts to raise their target price for the stock. In the past 90 days, 39 analysts gave a "strongly buy" rating, 10 analysts gave a "buy" rating, and 4 analysts gave a "hold" rating, while no analysts gave a "sell" or "strongly sell" rating. Analysts believe that Nvidia's explosive growth currently comes from its H100 product, and future growth will be driven by H200 Blackwell and InfiniBand Ethernet driven. The company continues to dominate the GPU market, and it will take a long time for competitors to catch up. One of the key reasons is that Nvidia's CUDA toolkit is one of its key competitive advantages.