Nvidia Stock Split Update: Down 2% Since June, History Predicts AI Stocks Will Do This Next

For many investors, Nvidia (NVDA -0.03%) The company has emerged as the quintessential artificial intelligence (AI) stock because its graphics processing units (GPUs) have become the industry standard for accelerating complex data center tasks, such as training machine learning models and running AI applications.

Nvidia shares have soared 780% since its AI-generated application ChatGPT went viral in late 2022. The event sparked a wave of AI infrastructure spending that’s still going strong, with Nvidia being one of the biggest beneficiaries. As a result, the company’s stock has become a staple in AI trading.

Nvidia’s 10-for-1 stock split in June reset its high stock price, and while the stock has fallen about 2% since then, historically Nvidia stock has the potential to fall further.

Splitting stocks like Nvidia typically outperform the S&P 500.

Typically, companies split their stocks after their stock price has risen significantly, which in itself suggests attractive growth prospects and competitive advantages. Companies with these qualities tend to generate above-average returns for shareholders.

In fact, Bank of America looked at data going back to 1980 and found a correlation: Companies that split their stocks gained an average of 25.4% in the 12 months after announcing the split. By comparison, the S&P 500 gained an average of 11.9% over the same period.

Here’s what this means: Nvidia announced its most recent stock split after the market closed on May 22, 2024. The stock traded at a split-adjusted price of $95 per share. Historical data predicts that the company’s stock will rise 25.4% to $119 by May 2025. However, with the company’s stock already trading at $119 per share, there is zero chance of it rising (or falling) over the next eight months.

NVIDIA’s performance has worsened after past stock splits

We can also predict Nvidia’s future performance by looking at company-specific data. For example, the chipmaker had five stock splits prior to its latest one. The chart below shows the stock price performance 12 and 24 months after five stock splits.

Data source: YCharts.

As we showed above, Nvidia tends to perform worse after stock splits: its stock price falls an average of 23% in the first 12 months and an average of 3% after 24 months.

Here’s what this means: Nvidia completed a 10-for-1 stock split after the market closed on June 7. The company’s stock was trading at $121 per share, split-adjusted. Historical data predicts that the company’s stock will fall 23% to $93 by June 2025. The company’s stock is currently trading at $119 per share, so a decline of 22% over the next nine months is expected.

That being said, past performance never guarantees future results. Additionally, most of the stock splits listed in the chart occurred within 12 months of the recession, making it unlikely that Nvidia would have a positive return. Going forward, whether Nvidia is a good investment will depend on the company’s financial performance and how much investors are willing to pay to own shares in the company.

Nvidia is the market leader in artificial intelligence chips

Nvidia dominates the market for datacenter GPUs, the chips used to accelerate workloads such as AI applications: The company will account for 98% of datacenter GPU shipments in 2023, roughly unchanged from the previous year, and these GPUs account for more than 80% of AI chips.

That advantage is twofold. First, Nvidia designs the most powerful GPUs money can buy, and rapid product development keeps its GPUs on the cutting edge in terms of performance. Second, Nvidia complements its chips with a robust ecosystem of software libraries and developer tools called CUDA. The CUDA platform makes it efficient to build GPU-accelerated applications.

Driven by the rise of machine learning and AI, graphics processor sales are expected to grow 27% annually through 2030, according to Grand View Research. Nvidia’s revenue is expected to grow at a similar pace, plus or minus a few percentage points, though revenue could grow at a slightly faster pace due to the potential for wider margins from share buybacks and pricing power.

Wall Street expects adjusted earnings to grow 35% annually through fiscal 2027, which ends in January 2027. That consensus makes the current valuation of 54 times earnings seem acceptable. Investors should consider buying small amounts of Nvidia stock today if they’re comfortable with volatility and are willing to hold the stock for at least three to five years.