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Shayne Heffernan

How to Trade the Nvidia Split

By Shayne Heffernan2 min read

Nvidia (NVDA), the most dominant company in the artificial intelligence (AI) market will divide its stocks ten times for one at the end of the week. You will thus be able to purchase a share for over $100 rather than having to shell out over $1,000 to own one.

A stock split theoretically has no impact on the value of a corporation since an increase in shares balances its reduced price. For smaller accounts, it will, however, make the stock—not including its options—more reasonably priced. Should you therefore include NVDA in your portfolio? This week I'm looking at past performance of stocks after prices decreased following a stock split.

Divining Splits for NVDA
Over the past two years, Nvidia's price swings have been really significant; today, it sits at around $1,000 per share.

Among only a few corporations with a market capitalization over $2 trillion is Nvidia. In terms of perspective, the firm has only experienced 14 splits whereby its market capitalization exceeds $100 billion.

After stock splits, huge corporations greatly lagged behind. Over the next two weeks, the stocks averaged a loss of more than 2%; not even 30% outperformed the SPX in the near term. With just 38.5% of the six-month returns surpassing the SPX, the averages for the six-month returns again underperformed—just 0.3%.

Let's lastly look at pricey stocks with massive market caps that split. These equities generally underperformed the larger market, as you would predict following a review of the numbers above. Over the first two weeks, they lost 2.66% on average; following six months, they climbed from there to get just above breakeven.

Purchasing the stocks that split yielded a 0.5% return over the next six months; 37.5% of them were positive and the same amount matched the SPX. Should you have only purchased the SPX, the average return was 3.8%; six of eight were positive.

But if we go back in time to the wild dotcom days, it all changes. If AI is in that type of market, which it may well be, NVDA could triple on the split.

Shayne Heffernan

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