Nvidia stock split: Will the NVDA share price recover post-split highs?

How did the Nvidia stock split affect the company’s performance, and where will it land next?

By Capital.com Research Team14:07 (UTC), 6 September 2022

Will the NVDA share price recover post-split highs? – Photo: Srafapress/hutterstock

Since Nvidia split its stock in July of last year, the tech company’s share price has been through the ringer. The stock rallied after the Nvidia stock split announcement, followed by further bullishness, before a bear market ravaged the stock through 2022.

How did the NVDA stock split affect the company’s share price, and what’s next for the stock in a volatile bear market?

What is a stock split?

A stock split involves a dilution of shares by a predetermined amount. For example splitting the stock in two, thus cutting the price of a single share in a company by half. Investors holding this stock will see their number of shares increase by the proportion of the split. The value of their holding is unaffected.

The Nvidia stock split was by no means unique. Major companies have engaged in similar stock splits, including Amazon’s 20-for-1 split announced in June, and Google’s split by the same amount in August.

While stock splits don’t alter the market capitalisation of a company, they can spark optimism among investors.

Firstly, stock splits can be intended to induce a short-term bullish drive in a stock, as lower prices per share may make investing in the company more attractive to retail investors, increasing liquidity

As retail trading has abounded, the accessibility of equities has become an increasingly important factor in driving the decision for a stock split. A typical retail investor works with a small portfolio, with the average Robinhood (HOOD) account amounting to $4,000.

This can make the inclusion of more expensive equities difficult, limiting their wriggle room for diversification. A split can welcome these investors into the fold when they had previously viewed the cost of holding a share as prohibitive.

Other motivations can also drive the decision. When Tesla (TSLA) announced its latest 3-for-1 stock split in June, the company said the move would help with “attracting and retaining excellent talent” by helping employees better manage their equity in the EV maker.

What is Nvidia?

Nvidia is a software company that works in the production of semiconductor chips. The company popularised the use of graphics processing units (GPUs), and makes most of its money from them.

The firm’s biggest business segment is gaming, where its GPUs are most popularly put to use. Nvidia made nearly a third of its revenue from gaming in the last quarter.

Its main competitors are the likes of Broadcom (AVGO), Taiwan Semiconductor Company (TSM) and Intel (INTC), to name a few.

The company debuted on the Nasdaq stock exchange through an Initial Public Offering (IPO) on 22 January 1999 at $12 a share, around the time of the dotcom boom.

It endured a relatively inconspicuous period of muted growth for most of the next two decades, before it began to rally through 2017 and 2018 following strong earnings in early 2017 that drove optimism in the stock, helping it establish new, higher resistance.

Nvidia stock split analysis

The Nvidia stock split history has involved a total of five splits, with four occurring between 2000 and 2007.

The company enacted a 4-for-1 stock split in July last year, in an apparent attempt to jump-start the Nvidia stock price following a period of stagnation which had lasted since October 2020.

“The stock split is intended to make stock ownership more accessible to investors and employees, thus increasing liquidity in the stock. The trading price of the company’s common stock has appreciated significantly in recent years,” Nvidia said at the time.

The US chipmaker added that, similar to Tesla, the move was also intended to improve employees’ ability to manage their equity, noting:

“The company believes that the stock price appreciation and the associated reduction in the number of shares of stock provided in equity grants has reduced the perceived attractiveness of employee equity awards, as well as limited an employee’s ability to hold and retain equity on a post-tax basis.”

The split appears to have helped in inspiring a short-term surge in the Nvidia stock price. Between the announcement of the Nvidia stock split on 21 May 2021 and the date that the new price would begin trading on 20 July 2021, Nvidia’s value appreciated by more than 28% as investors jumped into the stock in anticipation of a post-split retail investor rally.

The day after the Nvidia stock split date, Nvidia’s value rose a further 4.29%, rising by another 6.5% by 5 August 2021. The surge in October and November of 2021 was driven more by a combination of wider tech bullishness and the announcement by Meta to drive up spending, benefitting Nvidia’s GPUs. By this point, the benefits of the stock split had likely petered out.

Nvidia stock price, 2017 - 2022

The stock peaked at $333.76 on 29 November 2021, but has been falling since.

In 2022, Nvidia stock news has been negative, as the stock has lost more than half its value year-to-date. This has owed more to deep investor pessimism on a semiconductor sector that previously benefited from low supply and high demand.

There are signs for optimism, though, like legendary investor Cathie Wood doubling down on the stock in her ARK Innovation ETF.

More headwinds ahead according to analysts

Analyst assessments suggest any benefits from the NVDA stock split have now been expended, and while on the whole the stock appears popular, there are new headwinds ahead.

“Nvidia has seen a dramatic reduction in demand for its GPUs related to its gaming segment. While there might be some weakening of demand in gaming, the real driver is most likely Bitcoin mining which has seen a plunge in profitability forcing many Bitcoin miners to end operations and flood the market with used GPUs causing prices to tumble,” Peter Garnry, head of equity strategy at Saxo Bank, wrote in a note.

“The lower GPU prices are forcing Nvidia to write down its inventory by $1.3bn. Shares opened 8% lower but have recovered half the losses as the company says the long-term gross margin profile is intact.”

Meanwhile, production restrictions on the AI chips could be a problem for chipmakers like Nvidia, according to Hargreaves Lansdown’s senior investment and markets analyst Susannah Streeter.

“The new rules will affect Nvidia’s exports of A100 and H100 chips, which are designed to speed up machine learning tasks,” Streeter wrote on 1 August.

“This could hardly come at a worse time for Nvidia given that the last quarter was already highly challenging due to supply chain snarl ups and slowing demand for gaming consoles. Its artificial intelligence prowess is considered to be the engine for future growth at the company, which is why these strict new rules come as a severe blow.”

In a note shared with Capital.com, Wedbush analyst Matt Bryson added that the news may hinder Nvidia stock.

“This news represents another potential near-term setback for NVDA following recent disruptions to its gaming revenues (as inventories in that market normalize) and with its data center business already growing at reduced rates (due in large part to slowing spend in China),” Bryson wrote on 1 September.

“Having said this, even in a worst case scenario (assuming revenues are lost forever and no export licenses are granted by the US) the rate of growth for NVDA's AI business shouldn't change (i.e. this action is unlikely to disrupt growth rates outside of China) even if NVDA's TAM (Total Addressable Market) is affected by the loss of the China market.”

Based on a collection of 34 analysts’ ratings compiled by MarketBeat, as of 6 September, Nvidia was in a bullish position, with 24 analysts rating the stock as a ‘buy”’ and only one as a ‘sell’. The stock had an average upside of 60.36% for an Nvidia stock price target of $218.85, with targets ranging from $133 to $320.

Note that analysts’ predictions can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before trading. And never invest or trade money you cannot afford to lose.

FAQs

When did Nvidia split its stock?

Nvidia split its stock on 20 July 2021 in a 4-for-1 split.

How much was NVDA stock before the split?

Nvidia’s final pre-split price on 19 July 2021 was $751.

How many times has NVDA split?

Nvidia has split its stock five times in its history, with the most recent stock split happening last year following four splits between 2000 and 2007.