If you want to understand Nvidia’s stock splits, take a look at Apple’s

On June 7, shareholders of Nvidia will have a significant number of additional shares in their portfolio as the chipmaker enacts a 10-to-1 stock split. It’s an opportunity for the company to make its shares more affordable—and, ideally, to send them on yet another journey to the stratosphere, following its most recent journey which saw its market share come close to Apple’s, threatening to overtake it as the second most valuable company in the world.

Any investor will tell you that past performance is not indicative of future results. And in the world of tech stocks that’s especially true. But history can give you some perspective as to what might happen with a hot stock once it splits. And in the case of Nvidia, there might be no better forerunner to examine than Apple.

The companies, of course, are different, but have some striking similarities, most notably, perhaps, their large number of historical splits. Apple has split shares five times—a 2-for-1 split in June 1987, followed by another in June 2000 and Feb. 2005. In June 2014, the company enacted a 7-for-1 split and in Aug. 2020 it had a 4-for-1 split.

Nvidia has split five times before this week’s 10-for-1 split—with 2-for-1 splits in June 2000, Sept. 2001 and April 2006. It also had a 3-for-2 split in Sept. 2007 and a 4-for-1 split in July 2021.

Investors in both companies have benefitted from those actions. Owning just a single share of Apple, for instance, in early 1987 (which would have cost you about 35 cents in modern dollars) would result in a portfolio today of 224 shares (worth about $43,500). And the one-year returns for the stock after the last three splits have been notable. Shares gained 62% in the one year following the 2005 split. They jumped 37% after 2014’s and 20% in the 12 months following the 2020 split. 

Had you bought a single share of Nvidia before its first split (at a going rate of $3.43, again in modern dollars), you’d have 48 shares today, worth $55,680. (And by the end of the week, that portfolio would have 480 shares.)

That said, a split isn’t guaranteed short-term gains. In the two most recent Nvidia splits, the stock has lost ground in the following year, dropping 10% in 2021 and 70% in 2007.

In the larger picture on Wall Street, a stock split generally results in higher per-share prices. In general, a stock that has split will see a return of 25% over the next 12 months, versus 12% for the broader index, according to Bank of America. Nvidia might have fallen short the last couple of times, but given its performance over the past year (when the stock has seen gains of nearly 200%), there’s a belief among traders that it could climb even further this time.

Sometimes, though, a stock split requires investors to be patient. Amazon, for instance, enacted a 2-for-1 stock split in 1999 to make it more affordable, but share prices tumbled after the split was effective. It wasn’t until 2010 that the company climbed above its pre-split price. And a Google 2-for-1 split in 2014 (which created a non-voting share) didn’t really move the needle.

Ultimately, stock splits in healthy companies hold the most potential for two types of investors—the ones who missed getting in early with a company that’s ascending (as shares become cheaper to buy and more inviting to potential shareholders) and those who have no intention of selling anytime soon.

The longer an investor holds their shares and the more consistently the company performs, the larger the return on their investment. An extreme example of this is the Coca-Cola Company, which first split its shares in the 1920s and has done so at least nine times since. A family that initially owned just a single share of the company now has over 9,200 shares, worth more than $588,000.

There are no guarantees, of course—and if the AI run-up in share prices is a bubble, it could pop at any time. But should Nvidia continue to grow, even at a rate that’s below its exponential returns of the past year, investors could draw more lines between its success and that of Apple in the years to come. 

https://www.fastcompany.com/91135815/nvidia-stock-split-compares-to-apple-stock-split?partner=rss&utm_source=rss&utm_medium=feed&utm_campaign=rss+fastcompany&utm_content=rss