Nvidia’s stock is up 30% since it announced its 10-for-1 stock split. History says that will continue to happen.

The artificial intelligence (AI) craze has driven the stock market higher this year, and few companies have benefited from it more than Nvidia (NASDAQ: NVDA). In the months since ChatGPT launched in November 2022, sparking a wave of demand for AI-enabled hardware, the chipmaker’s share price has surged 800%

Nvidia was the best performing stock in the S&P 500 in 2023 and could have a repeat performance in 2024. It is back at the top of the S&P 500, and its year-to-date gains outpace the number two. Vistra with 34 percentage points.

Nvidia announced a 10-for-1 stock split in May and completed it in June to “make stock ownership more accessible to employees and investors.” But based on historical patterns, Nvidia stock could fall in the coming months.

Stocks have historically outperformed the S&P 500

Stocks that split typically outperform the S&P 500, at least temporarily. Since 2010, shares of these companies have appreciated an average of 18% in the 12 months following the stock split announcement, according to Bank of America. Meanwhile, the S&P 500 returned an average of 13% annually over the same period.

We can apply this information to Nvidia to speculate on its future performance. Specifically, its shares are up 30% since Nvidia announced in May that it was going through a stock split. So based on overall averages, that leaves an implied downside of 12% through May 2025. However, the outlook is considerably worse if we use company-specific data.

Historically, Nvidia stock has underperformed following stock splits

Prior to the most recent, Nvidia had conducted five stock splits since going public at $12 per share on January 22, 1999. Generally, those events were bad news for shareholders in the short term, as detailed in the table of below.

Data source: YCharts.

Nvidia shares have fallen an average of 23% in the 12-month periods following previous stock splits, and the stock is down an average of 3% after 24 months.

The chipmaker completed its latest split after the market closed on June 7, and shares began trading at an adjusted $120.37 on June 10. The stock has returned 2% since then, leaving it with an implied downside of 25% through June 2025 and an implied downside of 5% through June 2026.

The story continues

Past performance is never a guarantee of future results, but investors should be especially cautious about extrapolating from historical data in this situation. I say this because most of Nvidia’s previous stock splits occurred within 12 months of a recession, and all of them occurred within 24 months of a recession. Few stocks generate positive returns during economic downturns.

Nvidia’s second-quarter earnings release will be a high-stakes event

Nvidia is best known for its graphics processing units (GPUs), powerful chips that can perform many types of calculations faster and more efficiently than central processing units (CPUs). GPUs are particularly suited to computational tasks such as rendering graphics, training machine learning models, and running artificial intelligence (AI) applications.

Nvidia dominates those markets. According to a TechInsights analyst study, it accounted for 98 percent of data center GPU shipments last year, and its market share in AI processors ranges from 70 percent to 95 percent, according to analysts. But the company is truly formidable because it offers a full-stack computing platform that encompasses hardware, software, and services. That makes Nvidia a one-stop shop for AI.

It reported excellent financial results in the first quarter of fiscal 2025 (which ended on April 28). Revenue grew 262% year over year to $26 billion on the back of unprecedented demand for generative AI chips and networking hardware. Meanwhile, non-GAAP earnings rose 461% to $6.12 per diluted share. These numbers are well above Wall Street estimates.

The company will report second-quarter results on August 28, and Wall Street expectations are sky high. Analysts expect revenue and non-GAAP earnings growth of 112% and 137%, respectively. That would make Q2 the fifth consecutive quarter of triple-digit percentage growth on the top and bottom lines. Additionally, management will likely address rumors that shipments of next-generation Blackwell GPUs will be delayed.

The combination of high expectations and uncertainty surrounding Blackwell GPUs means the upcoming earnings release will be a high-stakes event for Nvidia shareholders. Indeed, the options price data implies 11% price action, meaning that the data suggests that the stock price could rise or fall by that much in the trading session following the report.

That puts investors in a difficult position. Would they be smarter to buy stocks now and risk losses, or buy stocks later and risk losing gains? The most prudent course of action would be to split the difference. Investors interested in adding Nvidia stock to their portfolios can buy a small position today, provided they are comfortable with the volatility. Then, if the stock falls substantially after earnings, they may consider adding to their position.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends Bank of America and Nvidia. The Motley Fool has a disclosure policy.

Nvidia’s stock is up 30% since it announced its 10-for-1 stock split. History says that will continue to happen. was originally published by The Motley Fool