Nvidia’s Stock Split and Subsequent Performance
Written by Quorica Capital Equity Team – Prince Shah
On 10 June 2024, Nvidia (NVDA) completed a 10-for-1 stock split, aimed at making its shares more accessible to retail investors. This move allowed existing shareholders to receive ten shares for every one they held, while the stock price was reduced accordingly, changing from over $1200 to $120 on that Monday, and so making it more affordable for people to buy. The decision followed a period of significant growth for Nvidia, driven by its dominance in graphics processing units (GPUs) and increasing demand for its products in artificial intelligence (AI) and gaming.
The initial market reaction to the stock split was largely positive with a short-term boost in both share price and investor sentiment. Stock splits are generally perceived as a bullish signal, indicating that a company expects its share price to continue rising. Nvidia’s stock surged before the split, with shares rising approximately 50% in the months leading up to the event. Investors were drawn to the potential for increased liquidity, making Nvidia shares more appealing to a broader base. Trading volumes spiked following the split, reflecting heightened interest, especially from smaller, retail investors who saw an opportunity to invest in a leading tech firm at a more approachable price point.
Stock Performance Since June 2024
Despite the initial positive reaction, Nvidia’s stock has experienced some turbulence in recent months, including a noticeable decline since the stock split. While Nvidia posted strong second-quarter results in 2024, with revenues up 122% year-over-year to $30 billion, investors were spooked by signs of slowing growth. From June to September, Nvidia’s stock price has fallen around 2%, a sharp contrast to the surge seen earlier in the year. Several factors contribute to this recent decline.
- Investor Sentiment Towards Tech Stocks: Over the past few months, investor sentiment toward the broader tech sector has become more cautious. With concerns about an overheated market and stretched valuations, many investors have been shifting away from high-growth stocks like Nvidia in favour of more defensive sectors. Nvidia’s high price-to-earnings (P/E) ratio of over 50.0x has been a particular point of concern, as high valuations are more vulnerable in an uncertain economic environment.
- Geopolitical Risks: As Nvidia’s products are deeply integrated into the
semiconductor supply chain, the company has faced potential risks from geopolitical tensions, particularly those involving China and the U.S. government’s restrictions on chip exports. As a major player in the semiconductor industry, Nvidia is exposed to any supply chain disruptions or increased trade restrictions, contributing to investor
wariness. For example, Nvidia said the delivery of its Blackwell chips (which comprise 208bn transistors that carry out calculations to train its large language model) would be delayed by several months from January, which particularly alarmed investors. - Market Expectations and Hype: Nvidia’s meteoric rise – up more than 160% in the past 12 months – has raised market expectations to unprecedented levels. As analyst Matt Britzman from Hargreaves Lansdown noted, “It’s less about just beating estimates now, markets expect them to be shattered and it’s the scale of the beat that looks to have disappointed a touch.” Given Nvidia’s role as a major driver of the S&P 500’s gains in 2024, any sign of faltering growth has had major effects on the broader market.
Broader Market and Economic Implications
Nvidia’s recent stock decline mirrors a broader trend in the technology sector, where growth stocks have struggled due to changing market conditions. Several macroeconomic factors have exacerbated this situation, including:
- Impact on the Broader Market: Nvidia’s stock accounts for about 6% of the S&P 500’s total value, and its performance has been a major driver of the index’s gains in the drop in Nvidia’s share price had a ripple effect across the market, dragging down the S&P 500 by around 5% in the months following and affecting other tech stocks. However, despite Nvidia’s decline, other tech giants like Apple and Amazon have still been going strong, suggesting some resilience in the broader sector.
- Production and Supply Chain Risks: Nvidia’s reliance on external manufacturers like TSMC underscores the risks associated with global semiconductor supply chains. Any disruptions, such as the delays faced by Blackwell, can have significant financial consequences. As Nvidia continues to push the boundaries of chip technology, maintaining a stable supply chain will be critical to sustaining its leadership position in AI and semiconductors.
- AI and Investor Expectations: The rise of AI has been one of the key drivers of Nvidia’s stock price, but it has also raised investor expectations to potentially unsustainable levels. As Simon French, the chief economist and head of research at the investment bank Panmure Liberum, observed, “Such are the lofty expectations for this stock, not just as a single company, but its broader economic impact. If you’re going to raise expectations that high, then you’ve got to keep growing at spectacular rates.” While Nvidia’s long-term prospects remain strong, particularly as AI use cases become more widespread, the company is facing pressure to deliver consistent and
rapid growth, which may be difficult to achieve in the short term.
Conclusion
Nvidia’s 10-for-1 stock split in June 2024 initially generated positive sentiment, but the company’s stock has since experienced a 2% decline, driven by concerns over slowing growth and production delays. Despite achieving a 122% increase in revenue, investor concerns surrounding the delayed release of Nvidia’s next-generation Blackwell AI chips have led to a sell-off, wiping $100 billion off its market value. Nvidia’s recent challenges
reflect broader market concerns about investor expectations and growth sustainability, highlighting the volatility and heightened expectations surrounding AI-driven companies.