The artificial intelligence (AI) boom has boosted the stock market this year, but no one company has been more successful than Nvidia. (NASDAQ: NVDA)In the months since ChatGPT was launched in November 2022, the chipmaker’s shares have risen 800% as demand for AI-enabled hardware has skyrocketed.
Nvidia is the best-performing stock on the S&P 500 in 2023 and could be poised to perform just as well in 2024. The company is again leading the S&P 500, with a year-to-date gain of 34 percentage points more than second-place Vistra.
Nvidia announced a 10-for-1 stock split in May and completed it in June to “make stock ownership more accessible to employees and investors,” but past trends suggest Nvidia’s stock price could fall in the coming months.
Historically, stocks that split have outperformed the S&P 500.
Stocks that split tend to outperform the S&P 500, at least temporarily: Since 2010, such companies’ shares have risen an average of 18% in the 12 months after announcing a stock split, according to Bank of America, while the S&P 500 has returned an average of 13% annually over that same period.
We can apply this information to Nvidia to infer how the company will perform going forward. Specifically, its stock price has risen 30% since the company announced its stock split in May. So, based on a rough average, we can expect a 12% decline by May 2025. However, using company-specific data, the outlook is much worse.
Historically, Nvidia’s stock price has slumped after stock splits.
Prior to the most recent split, Nvidia had split its stock five times since going public at $12 per share on January 22, 1999. Generally speaking, these events have been bad news for shareholders in the short term, as detailed in the table below.
Stock split date
12 Month Returns
24-month return
June 2000
28%
(52%)
September 2001
(72%)
(49%)
April 2006
1%
(6%)
September 2007
(70%)
(53%)
July 2021
(4%)
145%
average
(twenty three%)
(3%)
Data source: YCharts.
Nvidia’s stock price has fallen an average of 23% in the 12 months following past stock splits and remains down an average of 3% 24 months later.
The semiconductor company completed its most recent stock split after the market closed on June 7, and shares began trading at a split-adjusted price of $120.37 on June 10. Since then, the company’s shares have risen 2%, with a forecasted decline of 25% by June 2025 and a forecasted decline of 5% by June 2026.
The story continues
While past performance is never a guarantee of future results, investors should be especially careful about extrapolating past data in situations like these. I say this because most of Nvidia’s past stock splits have occurred within 12 months of a recession, and all have occurred within 24 months of a recession. Very few stocks generate positive returns during a recession.
NVIDIA’s second-quarter earnings report will be a big event
Nvidia is best known for its graphics processing units (GPUs), powerful chips that can perform a variety of calculations faster and more efficiently than a central processing unit (CPU). GPUs are particularly well suited for computing tasks such as rendering graphics, training machine learning models, and running artificial intelligence (AI) applications.
Nvidia dominates these markets: it accounted for 98% of datacenter GPU shipments last year, and its market share for AI processors ranges from 70% to 95%, according to analyst research at TechInsights. But what makes the company really powerful is that it offers a full-stack computing platform that spans hardware, software, and services, making Nvidia a one-stop shop for AI.
The company reported stellar results for the first quarter of fiscal 2025 (ended April 28). Revenues rose 262% year over year to $26 billion, driven by unprecedented demand for its generative AI chips and networking hardware. Meanwhile, non-GAAP earnings soared 461% to $6.12 per share. These figures beat Wall Street expectations by a wide margin.
The company is set to report its second-quarter results on August 28, and Wall Street expectations are sky-high. Analysts expect revenue and non-GAAP earnings to grow by 112% and 137%, respectively. If that happens, Q2 will mark the fifth consecutive quarter of triple-digit revenue and earnings growth. Additionally, management is expected to address rumors of delayed shipments of the next-generation Blackwell GPUs.
The rising expectations combined with uncertainty surrounding Blackwell GPUs make the upcoming earnings release a big gamble for Nvidia shareholders. In fact, options pricing data suggests a price movement of 11%, and the data suggests the stock could rise or fall by that much in the trading session following the report.
That puts investors in a tricky position: Is it wise to buy shares now and risk a loss, or buy shares later and risk missing out on a gain? The smartest move is somewhere in between. Investors looking to add Nvidia shares to their portfolios can buy a small position today if they’re OK with volatility. Then, if the stock falls significantly after the earnings release, they can consider adding to their position.
Should I invest $1,000 in Nvidia right now?
Before you buy Nvidia stock, consider the following:
The analyst team at Motley Fool Stock Advisor has identified 10 stocks that investors should buy right now, and Nvidia is not among them. The 10 selected stocks have the potential to generate big gains over the next few years.
Let’s look back at April 15, 2005, when Nvidia made this list… if you had invested $1,000 at the time of our recommendation, you would have $758,227.!*
Stock Advisor offers investors an easy-to-follow blueprint for success, with portfolio construction guidance, regular updates from analysts and two new stock picks every month. Stock Advisor The service is More than 4 times First S&P 500 recovery since 2002*.
View 10 stocks »
*Stock Advisor returns as of August 22, 2024
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Trevor Gennewin has invested in NVIDIA. The Motley Fool has invested in and recommends Bank of America and NVIDIA. The Motley Fool has a disclosure policy.
NVIDIA shares up 30% since announcing a 10-for-1 stock split. History says this is what’s next. This was originally published by The Motley Fool.
