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 Woodard, head of the bank’s research investment committee, described the share split as “another large-cap tech pursuing shareholder-friendly policies” in a Thursday note to clients. Nvidia is the fourth Magnificent Seven Big Tech company to announce a stock split since 2022, with Google, Amazon, and Tesla also “all making shares more accessible,” Woodard and his team noted.
With many Big Tech companies seeing their share prices top $500 in recent years, something that can limit retail investors’ ability to buy shares, they've been looking to make it easier for nonprofessional investors to buy in. In other words, “Big Tech is going bite-sized,” BofA said.
History says stock splits are bullish
BofA’s 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 Thursday’s earnings release—this 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 America’s reading of history.
“Splits have boosted returns in every decade, including the early 2000s when the S&P 500 struggled,” Woodard and his team explained.
Specifically, Bank of America’s research shows that stocks have managed 25% total returns in the 12 months after a stock split historically, compared with 12% for the S&P 500.
Bank of America also noted that stock splits even manage to spark bull runs in stocks that have been struggling. BofA gave the example of chip company AMD and oil-refining giant Valero, both of which saw their share prices surge after announcing stock splits, despite a poor performance prior to the split. “Since gains are more common and larger than losses on average, splits appear to introduce upside potential into markets,” the analysts added.
However, channeling the Securities and Exchange Commission here, it’s important to add the caveat that all mutual funds are required to tell investors by law: “Past performance is not indicative of future results.”
Bank of America was also quick to note that “outperformance is no guarantee” 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.
“While splits could be an indication of strong momentum, companies can struggle in a challenging macro environment,” the analysts noted. “Companies like Amazon, Google, Tesla, and Dexcom struggled in the 12 months after splits were announced in 2022 as interest rates spiked.”
Still, the vast majority of Wall Street analysts remain bullish on shares of Nvidia: The company boasts 48 “buy” ratings, eight “overweight” ratings, six “hold” ratings, and zero “sell” ratings, according to the Wall Street Journal. And CEO Jensen Huang’s announcement that Nvidia will develop another new AI chip within the next 12 months, because the company is now on a “one-year rhythm” of development, was also just the news bulls wanted to hear.
As Wedbush tech analyst Dan Ives, a noted Nvidia bull, put it in a Thursday note: “The Godfather of AI, Jensen, and Nvidia delivered another masterpiece quarter and guidance that should be hung in the Louvre.”
