The chip giant’s 10-for-1 stock split, which begins trading on Monday, comes after a significant price surge, with shares rising 212% in the past year. This impressive rally propelled Nvidia into the exclusive $3 trillion market cap club, joining the ranks of Apple (AAPL) and Microsoft (MSFT), making it only the third U.S. company to achieve this milestone.
“A stock split is a vote of confidence from management that the stock will hold its value, as the stock price typically increases,” says Howard Silverblatt, a senior analyst at S&P Dow Jones Indices.
Adam Coons, chief investment officer at Winthrop Capital, anticipates that the split will attract more retail investors but warns that this influx could lead to increased volatility.
“They can be a little bit more quick and emotional with their buying and selling decisions, so that can lead to heightened volatility as you start to dilute the institutional buyers,” Coons told Yahoo Finance.
Julian Emanuel from Evercore ISI views this potential volatility as a buying opportunity, considering Nvidia a “generational opportunity” and the defining technology stock of this era.
“While high-profile splits often fuel stock volatility — with speculative buying and profit-taking around the event — the subsequent period can catalyze buying opportunities for patient investors,” Emanuel wrote in a client note.
Historically, stock splits have been bullish for companies, with average returns one year later of 25%, compared to about 12% for the broader market, according to analysis from Bank of America.
Nvidia’s extraordinary gains have significantly contributed to broader market highs. Its rally accounted for approximately a third of the S&P 500’s return since the beginning of the year and more than a quarter of the S&P 500’s return in May alone, according to Silverblatt.