Nvidia Stock Split Hype Downplayed by Goldman Sachs

Goldman Sachs has issued a note of caution to investors expecting Nvidia’s stock split to result in a sustained rally, emphasizing that the benefits from such events are generally limited.

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Nvidia recently announced a 10-for-1 forward stock split in its fiscal first-quarter earnings report. Trading on a split-adjusted basis began on Monday, with Nvidia shares having surged nearly 27% in May and an additional 10% this month, reaching a market capitalization of $3 trillion.

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While a stock split doesn't alter a company's underlying fundamentals or intrinsic value, some investors believe it could drive up the stock price by making shares more affordable and accessible to a broader range of investors, potentially increasing retail ownership and liquidity.

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Goldman Sachs examined 45 Russell 1000 stock splits since 2019, finding that shares typically rose by 4% in the week following the announcement. However, in the subsequent weeks or around the effective date, there was no clear impact on stock prices.

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David Kostin, Goldman’s head of U.S. equity strategy, noted in a report, “One theory for the announcement effect is increased liquidity. However, we find that liquidity showed little change after the split took effect.”

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Furthermore, Goldman Sachs observed that recent stock splits have not significantly boosted retail trading activity. The firm analyzed the average percentage of shares traded by retail investors six months before and six months after a split. On average, companies experienced only a 0.2 percentage point increase in retail trading activity following stock splits. However, there have been exceptions among megacap tech stocks, including Amazon. Nvidia's 2021 stock split notably resulted in a 7 percentage point increase in the average share of retail trading.

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Goldman Sachs' analysis suggests that while stock splits can generate initial excitement and a short-term bump in share prices, the long-term effects on liquidity and retail trading activity are minimal. This perspective serves as a reminder that stock splits, though potentially beneficial in the short term, do not fundamentally alter a company’s value or financial health.

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