Bank of America says Nvidia’s 10-for-1 stock split confirms ‘big tech is going small’ to attract retail investors

Nvidia shares rose 9% to a record high above $1,000 on Thursday after another strong earnings report, but the stock is about to get a lot cheaper as the AI ​​chip leader announced a 10-for-1 split that will help retail investors buy in more easily. . Its shares.

Bank of America analysts, led by Jared Woodward, head of the bank’s research investment committee, described the stock split as “another large-cap technique that pursues shareholder-friendly policies” in a Thursday note to clients. Woodward and his team noted that Nvidia is the fourth Big Tech company from the Magnificent 7 to announce a stock split since 2022, with Google, Amazon and Tesla also working to “make the stock more accessible.”

Since many big tech companies have seen their stock prices rise to $500 in recent years, something that can limit retail investors’ ability to buy shares, they were looking to make it easier for non-professional investors to buy. In other words, “Big Tech is getting small,” Bank of America said.

History says that stock splits are bullish

BofA’s sell-side analysts have long been bullish on Nvidia shares, and they once again raised their lofty 12-month price target for the chip giant following Thursday’s earnings call — this time from $1,100 to $1,320. Nvidia shares could rise another 26% if the outlook proves clear, and a stock split could help that upward move, according to a Bank of America reading of the date.

“Splits boosted returns in every decade, including the early 2000s when the S&P 500 struggled,” Woodward and his team explained.

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Specifically, Bank of America research shows that stocks have generated total returns of 25% in the 12 months following stock splits historically, compared to 12% for the S&P 500.

Bank of America also noted that stock splits even managed to spark rallies in stocks that were struggling. They gave the example of chip company AMD and oil refining giant Valero, both of which saw their stock prices rise after announcing stock splits, despite poor performance before the split. “Because gains are more common and larger than losses on average, splits appear to offer upside potential in the markets,” the analysts added.

However, in the SEC’s guidance here, it is important to add the caveat that all mutual funds are required to tell investors by law: “Past performance is not indicative of future results.”

Bank of America was also quick to point out that “outperformance is not a guarantee” following the stock split. Companies that announce stock splits still see negative returns 30% of the time, and when they do, the average decline is a whopping 22% over the following 12 months.

“While splits can be an indicator of strong momentum, companies can struggle in a challenging macro environment,” the analysts noted. “Companies such as Amazon, Google, Tesla and Dexcom have struggled in the 12 months following the announcement of their splits in 2022 as interest rates rise.”

However, the vast majority of Wall Street analysts remain bullish on Nvidia stock — the company has 48 “buy” ratings, eight “overweight” ratings, six “hold” ratings, and zero “sell” ratings, according to Wall Street Journal. Huang’s announcement that Nvidia will develop another new AI chip within the next 12 months because the company is now on a “one-year cadence” of development was also just the news speculators wanted to hear.

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As Wedbush technology analyst Dan Ives, a noted Nvidia supporter, said in a note Thursday: “The godfather of AI Jensen and Nvidia has delivered another masterpiece and direction quarter that should hang in the Louvre.”

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