NVIDIA stock split: Short-term peak, long-term bottom?

The largest stock split in history is about to take effect, what does this mean for NVIDIA? Can the astonishing rally continue?

Starting from Monday, June 10th, NVIDIA's stock will trade at the adjusted price after the split. The overall value of NVIDIA is expected to remain unchanged after the split, but the cheaper share price will make it easier for investors to reach.

At the time of this stock split, NVIDIA's stock price is soaring, driven by the artificial intelligence boom. NVIDIA has risen by 205% in the past year and has a return rate of 580% over the past three years.

Historically, after a stock split, NVIDIA's stock price may fluctuate. This could be a short-term peak, but a long-term bottom?

What does NVIDIA's stock split mean?

Jay Woods, Chief Strategist at Freedom Capital Markets, believes that this split may be a precursor to NVIDIA's inclusion in the Dow Jones Industrial Average. NVIDIA's stock price has already reached the high point of previous split announcements, and the stock split will make the stock more attractive for inclusion in the Dow Jones.

NVIDIA is likely to replace Intel in the Dow Jones and SPDR Dow Jones Industrial Average ETF, according to Woods:

As a representative of the next wave of tech growth, NVIDIA, a manufacturer of artificial intelligence and chips, should be included in the Dow Jones.

PreMarketPrep predicted this stock split before the earnings report and also stated that NVIDIA replacing Intel in the Dow Jones is logical. PreMarketPrep said:

I expect it to be announced in the summer that NVIDIA's inclusion in the Dow Jones is not a matter of "if," but "when."

Short-term peak, long-term bottom?

This is not NVIDIA's first stock split, but the 10-for-1 split is the largest in the company's history.

Historically, since its IPO in 1999, NVIDIA has completed five splits, and the stock price usually experiences a significant drop in the 12 and 24 months following the split.

In the 12 months after the split, NVIDIA has averaged a 23% decline, and still averaged a 3% decline after 24 months.

It is worth noting that four out of NVIDIA's five previous stock splits occurred around economic recessions, which triggered bear markets and had devastating consequences for the stock market, naturally affecting NVIDIA as well.

Looking at a longer period, despite the initial price drop, investors who bought stocks during the split often received good returns.

Apple's stock split history is similar to NVIDIA's. For example, in early 1987, if you only held one share of Apple stock (equivalent to 35 cents today), your investment portfolio would now have 224 shares (worth about $43,500). After the last three splits, the stock's one-year return rate was quite impressive. After the split in 2005, the stock price rose by 62% in the following year. After the split in 2014, the stock price rose by 37%, and after the split in 2020, it rose by 20% in the following 12 months According to data from Bank of America, stocks that have undergone stock splits generally have a return rate of 25% in the next 12 months, while the return rate of the overall market index is 12%. Although NVIDIA's performance in the past few times may not have been ideal, considering its impressive performance in the past year, traders expect NVIDIA's stock price to further rise.

Of course, nothing is absolute. If the rise in AI stock price is a bubble, it could burst at any time