Nvidia (NASDAQ: NVDA) will complete a 10-for-1 stock split after market close tomorrow. The split comes on the heels of tremendous price appreciation. Nvidia returned 205% during the past year and 580% during the last three years, with enthusiasm about artificial intelligence being the primary reason for those gains.
What does the split mean for investors? Shareholders will get nine additional shares for each share they own. The stock will begin trading on a split-adjusted basis on Monday, June 10. Importantly, the split will not impact the value of the company, nor will it change an investor’s stake in the company.
The big question is: What happens following the stock split? Of course, there is no way to know for certain, but we can make an educated guess by examining Nvidia’s performance following past stock splits.
History says Nvidia stock is headed for a sharp decline
Nvidia has completed five stock splits since its IPO in 1999. Following those events, shares typically declined (often substantially) during the next 12 months and 24 months, as shown in the chart.
Stock Split Date
Stock Split Type
Return (12 Months Later)
Return (24 Months Later)
July 20, 2021
4-for-1
(4%)
145%
Sept. 11, 2007
3-for-2
(70%)
(53%)
April 7, 2006
2-for-1
1%
(6%)
Sept. 12, 2001
2-for-1
(72%)
(49%)
June 27, 2000
2-for-1
28%
(52%)
Average
(23%)
(3%)
Data source: YCharts.
As shown, Nvidia stock declined by an average of 23% during the 12-month period following past stock splits, and the stock was still down by an average of 3% after 24 months. In other words, history says Nvidia is headed for a steep, prolonged drawdown.
But there is a major asterisk by that statement: Four of the past five stocks splits occurred in close proximity to a recession. Specifically, the U.S. economy was in a recession from March 2001 through November 2001, and from December 2007 through June 2009. Those economic downturns precipitated bear markets that had devastating consequences for the stock market, so Nvidia was naturally dragged down.
Importantly, while shares initially declined, investors have still done exceptionally well if…
..