Nvidia : Is there life after Stock Split ?
For many investors, Nvidia (NVDA -0.03%) has emerged as the quintessential artificial intelligence (AI) stock.
That is because the company's graphics processing units (GPUs) are the industry standard in accelerating complex data center tasks, such as training machine learning models and running AI applications.
Its shares have surged +780% since the generative AI application ChatGPT went viral in November 2022.
That event triggered a tidal wave of AI infrastructure spending that is still building momentum.
Nvidia has been one of the biggest beneficiaries.
In turn, the stock has become a staple of the AI trade.
Nvidia reset its soaring share price in June by conducting a forward 10-for-1 stock split.
Shares have since tumbled about -2%, and History says Nvidia stock may have further to fall. Huh !
Nvidia stock price - as of Fri, 13 Sep 2024
Stock-split will outperform S&P 500 ?
Generally speaking, companies conduct forward stock splits after substantial share price appreciation, which itself is suggestive of (a) Compelling growth prospects and a (b) Competitive edge.
Companies that possess those qualities tend to produce above-average returns for shareholders.
$Bank of America(BAC)$ has reviewed data back to 1980 and found a correlation:
Companies that split their stock returned an average of 25.4% during the 12 months after stock split announcement.
In contrast, the S&P 500 returned an average of 11.9% during the same period.
Here's what that could mean:
On 22 May 2024, Nvidia announced its latest stock split after market closed.
The stock traded at a split-adjusted $95 per share.
Based on BAC’s findings, rightfully Nvidia share price will increase +25.4% to $119 by May 2025.
As of Fri, 13 Sep 2024, Nvidia was already trading at $119 per share.
Leaving 0% implied upside (or downside) over the next 8 months.
Nvidia stock split performance.
Predictions could also be made about Nvidia's future performance by reviewing company-specific data.
For example, prior to 07 Jun 2024 stock split, the chipmaker had completed 5 other splits. (see below)
Table shows how the stock performed during the 12 and 24 months following those five splits.
Nvidia's performance after 12 mths & 24 mths.
Inference:
Nvidia usually performed poorly following stock splits.
Its share price has declined by an average -23% during the first 12 months and was still down by further -3% on average after 24 months.
Here's what that could mean:
Nvidia completed its 10-for-1 split after the market closed on 7 Jun 2024.
The stock traded at a split-adjusted $121 per share.
History says its share price will drop by -23% to $93 by June 2025.
With Nvidia currently trading at $119 per share, the implied downside is -22% over the next 9 months.
Qualifiers.
Having said that, past performance is never a guarantee of future results.
Most of the stock splits listed in the chart took place within 12 months of a recession.
An undesired economic conditions meant that Nvidia had little chance of posting positive returns.
Whether Nvidia is a solid ‘future’ investment depends on:
Nvidia’s financial performance.
What investors are willing to pay to own the company’s shares.
AI Chips - Market Leader.
Nvidia dominates the market for data center GPUs, chips.
In 2023, it accounted for 98% of data center GPU shipments, essentially unchanged from prior year and those GPUs account for more than 80% of AI chips.
Two reasons for Nvidia’s dominance:
Nvidia designs the most powerful GPUs money can buy, and rapid product development keeps its GPUs on the cutting edge in terms of performance.
It complements its chips with a robust ecosystem of software libraries and developer tools called CUDA. The CUDA platform streamlines building of GPU-accelerated applications.
According to market research & consulting firm, Grand View Research:
Graphics processor sales are projected to grow at +27% annually through 2030.
Driven by the proliferation of machine learning and AI.
Nvidia's sales should increase at a similar pace, plus or minus a few percentage points.
Earnings, however, may grow a bit faster due to (a) share repurchases and (b) potential margin expansion driven by pricing power.
Forecasted Growth.
Wall Street forecasts adjusted earnings will increase at +35% annually through Fiscal 2027 (ends January 2027).
That consensus makes Nvidia’s current valuation of 54x earnings - tolerable.
Investors should consider buying a small position in Nvidia stock today, provided (i) they are comfortable with volatility and (ii) willing to hold their shares for at least 3 to 5 years.
My viewpoints: (mine only)
I get visibly concerned when a post “suggests” readers to hold onto a listed company’s shares for x-number of years.
This is because a lot of things could already happen within a year, let alone 3 to 5 years.
Personally, I rather focus on whether US will slip into a recession anytime between now and August 2025; given an ever-ballooning National debt that has already tipped $35.377 trillion and counting.
Looking at Statista recession projection, the 4 months that US would be most susceptible to recessions will be: (see above)
December 2024 - 62.94%.
March 2025 - 58.31%.
July 2025 - 56.29%.
August 2025 - 61.79%.
2 other months leading up to 2 of 4 “peaks” could be possibility too ie. February 2025 (58.31%) & June 2025 (55.83%).
Wouldn’t it be a better strategy picking up bargains of blue-chip stocks if ever risk of US recession surfaces, even if it’s just to spook US market silly ? Rember to have spare-cash lying around !
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Do you think Nvidia will be able to break through its historic stock split 12 & 24 months behaviour?
Do you think paying attention to whether US will slip into a recession will pay off handsomely?
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Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
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The world needs NVDA chips
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