Nvidia shares surged 9% to a record high above $1,000 on Thursday after another blowout earnings report, but the stock is about to get a lot cheaper as the AI chip leader announced a 10-for-1 split that will help retail investors more readily buy its shares.
Bank of America analysts, led by Jared Woodward, head of the bankโs research investment committee, described the share split as โanother large-cap tech pursuing shareholder-friendly policiesโ in a Thursday note to clients. Nvidia marks the fourth Magnificent 7 big tech company to announce a stock split since 2022, with Google, Amazon, and Tesla also โall making shares more accessible,โ Woodward and his team noted.
With many big tech companies seeing their share prices top $500 in recent years, something that can limit retail investorsโ ability to buy shares, theyโve been looking to make it easier for non-professional investors to buy in. In other words, โbig tech is going bite-sized,โ BofA said.
History says stock splits are bullish
BofAโs sell-side analysts have long been bullish on shares of Nvidia, and they once again hiked their lofty 12-month price target for the chip giant after Thursdayโs earnings releaseโthis time from $1,100 to $1,320. Nvidia shares could surge another 26% if the outlook proves prescient, and the stock split might help with that bullish move, according to Bank of Americaโs reading of history.ย
โSplits have boosted returns in every decade including the early 2000s when the S&P 500 struggled,โ Woodward and his team explained.
Specifically, Bank of Americaโs research shows that stocks have managed 25% total returns in the 12 months after a stock split historically, compared to 12% for the S&P 500.ย
Bank of America also noted that stock splits even manage to spark bull runs in stocks that have been struggling. They gave the example of the chip company AMD and the oil-refining giant Valero, both of which saw their share prices surge after announcing stock splits, despite a poor performance prior to the split. โSince gains are more common and larger than losses on average, splits appear to introduce upside potential into markets,โ the analysts added.
However, channeling the Securities and Exchange Commission here, itโs important to add the caveat that all mutual funds are required to tell investors by law: โpast performance is not indicative of future results.โย
Bank of America was also quick to note that โoutperformance is no guaranteeโ after a stock split. Companies that announce stock splits still see negative returns 30% of the time, and when they do, the average drop is a sizable 22% over the following 12 months.ย
โWhile splits could be an indication of strong momentum, companies can struggle in a challenging macro environment,โ the analysts noted. โCompanies like Amazon, Google, Tesla, and Dexcom struggled in the 12 months after splits were announced in 2022 as interest rates spiked.โ
Still, the vast majority of Wall Street analysts remain bullish on shares of Nvidiaโthe company boasts 48 โbuyโ ratings, eight โoverweightโ ratings, six โholdโ ratings, and zero โsellโ ratings, according to the Wall Street Journal. And Huangโs announcement that Nvidia will develop another new AI chip within the next 12 months because the company is now on a โone-year rhythmโ of development was also just the news bulls wanted to hear.ย
As Wedbush tech analyst Dan Ives, a noted Nvidia bull, put it in a Thursday note: โThe Godfather of AI Jensen and Nvidia delivered another masterpiece quarter and guidance that should be hung in the Louvre.โ