Nvidia shares jumped 9% to a record 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 buy your shares more easily.
Bank of America Analysts, led by Jared Woodard, head of the bank’s investment research committee, described the stock split as “another large-cap tech pursuing shareholder-friendly policies” in a note to clients Thursday. Nvidia is the fourth Magnificent Seven Big Tech company to announce a stock split since 2022, with Google, AmazonAnd You’re here also “all of this makes actions more accessible,” Woodard and his team noted.
As many big tech companies have seen their stock prices rise above $500 in recent years, which may limit retail investors’ ability to buy shares, they have sought to make it easier for investors to buy shares. non-professional. it becomes bite-sized,” BofA said.
History Says Stock Splits Are Bullish
BofA sell-side analysts have long been bullish on Nvidia shares, and they once again raised their ambitious 12-month price target for the chip giant following Thursday’s earnings release, this time from $1,100 to $1,320. Nvidia shares could rise another 26% if the outlook proves prescient, and the stock split could contribute to that upward move, according to Bank of America’s historical reading.
“Divisions have boosted returns in every decade, including the early 2000s, when the S&P 500 was struggling,” Woodard and his team explained.
Specifically, Bank of America research shows that stocks have historically generated total returns of 25% in the 12 months following a stock split, compared to 12% for the S&P 500.
Bank of America also noted that stock splits even manage to trigger rallies in distressed stocks. BofA gave the example of a chip company AMD and oil refining giant Valero, both of which saw their stock prices rise after announcing stock splits, despite poor performance before the split. “As gains are more common and larger than losses on average, splits appear to introduce upside potential to markets,” the analysts added.
However, in channeling the Securities and Exchange Commission here, it is important to add the caveat that all mutual funds are required by law to tell investors: “Past performance is not a guide to future results.” »
Bank of America was quick to point out that “outperformance is not a guarantee” after a stock split. Companies that announce stock splits still experience negative returns 30% of the time, and when they do, the average decline is 22% over the following 12 months.
“While splits may be a sign of strong momentum, companies may struggle in a challenging macroeconomic environment,” the analysts note. “Companies like Amazon, Google, Tesla and Dexcom have struggled in the 12 months since splits were announced in 2022, as interest rates soared.”
Nonetheless, the vast majority of Wall Street analysts remain bullish on Nvidia’s stock: the company has 48 “buy” ratings, eight “overweight” ratings, six “hold” ratings, and zero “sell” ratings. according to Wall Street Journal. And CEO Jensen Huang’s announcement that Nvidia will develop another new AI chip in the next 12 months, as the company is now on a “one-year pace” of development, was also just the news that the bulls wanted to hear.
As Dan Ives, a technology analyst at Wedbush, a noted Nvidia bull, said in a Thursday note: “The godfather of AI, Jensen and Nvidia, delivered another quarter of masterpiece and advice that should hang in the Louvre. »
This story was originally featured on Fortune.com
