Nvidia (NASDAQ:NVDA) has probably been the most watched stock on the planet in recent months. This is because the company dominates the market for artificial intelligence (AI) chips and its booming revenues have sent the stock price soaring. In the first half, shares soared more than 150%, after already gaining more than 1,300% in the previous five years.
In fact, this momentum has pushed Nvidia stock past the $1,000 threshold, a level that can be a psychological barrier for some investors — and in other cases, makes it difficult for smaller investors to buy without resorting to fractional 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.
Examine historical patterns
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, 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 just because the company initiated a split. But, as you can see in the chart below, history shows that stock split players tend to outperform the S&P 500 in the 12 months following the stock split announcement.
The chart shows that companies that split their stocks generated an average total return of more than 25% over the 12-month period. That compares to less than 12% for the S&P 500 as a whole. That figure is based on Bank of AmericaResearch Investment Committee data from 1980 to present.
Nvidia’s Past Stock Splits
We can now delve deeper into this by looking at Nvidia itself after its last two stock splits, in 2007 and 2021. After both, the stock declined over the next 12 months, but first, the stock rose in the two to five months following the deal. Nvidia stock rose more than 60% in the five months following the 2021 split and added about 17% in the six-week period following the 2007 split.
So what does all this tell us about what could happen today? It’s important to keep in mind that Nvidia’s business has evolved a lot since the last stock splits. Then, it mainly served the video game industry and gradually moved to other areas, such as AI. Today, the fast-growing field of AI is the company’s core business, making the stock considerably more valuable. more attractive for investors. It is therefore possible that Nvidia is benefiting from stronger momentum today than after previous splits, which could make a lasting rally possible.
That could happen if Nvidia continues to report impressive earnings growth and hit its product launch targets. And things look promising. Nvidia has reported record revenue quarter after quarter and says demand for its soon-to-be-launched Blackwell architecture and chip is outpacing supply. And speaking of Blackwell, that launch could also be a positive catalyst for the stock.
All of this means that it’s very possible that Nvidia’s stock will soar in the second half of the year, thanks to the company’s leadership in a high-growth market and strong revenue prospects. And the best news is this: Even if the story is wrong and Nvidia doesn’t recover in the coming months, this top-tier stock still has what it takes to deliver big returns to investors over the long term.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Adria Cimino has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Bank of America and Nvidia. The Motley Fool has a disclosure policy.
After Nvidia’s stock split and 150% gain in the first half, will the company soar in the second half? Here’s what the story says. was originally published by The Motley Fool
