Nvidia’s recent stock split has once again ignited market activity, with speculative rallies and subsequent profit-taking playing significant roles in shaping stock performance. Drawing on insights from UBS analyst Rebecca Cheong, we delve into the typical patterns observed following Nvidia’s stock split and its broader impact on the market.

1. Speculative Rally Following Stock Split Announcement

Nvidia’s stock experienced a substantial surge after the announcement of its stock split. From May 22 to June 18, Nvidia’s stock price rose by an impressive 43%. This phenomenon mirrors the previous split in 2021, where the stock saw a 38% increase between the announcement on May 21 and three weeks post-split. This kind of speculative rally is not uncommon among high-profile stocks, particularly within the tech sector.

During the same period, major indices such as the QQQ (tracking the Nasdaq-100) and SPY (tracking the S&P 500) also experienced gains, rising by 6.5% and 3.5%, respectively. Notably, Nvidia’s performance contributed significantly to these rallies, accounting for 43% of the QQQ’s and 64% of the SPY’s increases. This underscores Nvidia’s influence within these indices and its role in driving broader market trends.

2. Profit-Taking and Subsequent Sell-Off

Following the post-split euphoria, Nvidia has experienced a retracement. Since June 18, the stock has fallen by approximately 13%, resulting in a net rally of 24% since the split announcement. This pattern aligns with Nvidia’s historical behavior, where a similar post-split retracement of 8% was observed in 2021, leading to a net rally of 27%.

During this sell-off period, the QQQ and SPY have also declined by 2.3% and 1.0%, respectively, with Nvidia accounting for a significant portion of these losses—48% for the QQQ and 89% for the SPY. These figures reflect Nvidia’s substantial weight within these indices and the influence of its stock performance on overall market sentiment.

3. Medium-Term Rally Post Profit-Taking

Historically, Nvidia has demonstrated a capacity for recovery and subsequent gains following periods of profit-taking. After a similar period of profit-taking in 2021, Nvidia’s stock price increased by 10% over the following three months. For comparable large-cap tech stocks, often referred to as the MAG-7, the average rally post-split was around 13%.

Scenario Analysis: Future Implications

Looking ahead, if Nvidia rallies by 10% over the next 1-3 months, this could imply moderate gains for major indices. Based on Nvidia’s historical contribution percentages, such a rally could result in a 1.5% increase for the QQQ and a 0.6% rise for the SPY. While these figures present a base case scenario, the potential for higher gains exists, driven by robust retail support for equities, particularly Nvidia, which remains a favorite among individual investors.

Nvidia’s stock split and the subsequent market dynamics highlight the significant influence of high-profile tech stocks on broader market movements. The speculative rallies, profit-taking sell-offs, and medium-term recovery patterns seen with Nvidia are emblematic of typical market behavior following such corporate actions. As investors navigate these trends, Nvidia’s performance will likely continue to play a pivotal role in shaping the market landscape, offering opportunities and risks that are closely watched by market participants.