Here’s everything you need to know about Nvidia’s upcoming stock split and why it’s more important to markets than the run-of-the-mill stock split.
FULL VIDEO TRANSCRIPT:
You’ll be forgiven if you have Nvidia envy.
The stock is on a tear – crossing $1200 a share at its peak.
Feels too rich for your blood? There might be a better chance to get in on the action…because Nvidia is getting a 10-for-1 stock split.
To be clear, every existing share will be split into 10 new shares.
If this is your first stock split, think of it like a pizza pie: The size of a total pizza and the price for that pie are the same no matter how you slice it. But the more you slice the pie – the smaller the pieces – and the more people get to eat.
So let’s get back to Nvidia…
Let’s say an investor holds one share of Nvidia at $1200 before the split. After the split, that investor holds 10 shares at $120 a piece – do the math – that still equals the original $1200.
So why split a stock? One reason is Liquidity. That’s a fancy way of saying flexibility. The higher a stock price, the less flexibility buyers and sellers have.
If you’re still a person who uses cash a lot, you’ll know what I mean. Which bill gets used the most – the $1 bill or the $50 bill? You guessed it, the smaller currency because there is more flexibility and less risk.
When a stock is in the stratosphere like Nvidia – a stock split makes it more manageable to handle.And that can pay off for shareholders.
Stocks that split usually do better than the benchmark S&P 500. According to BofA Global Research, companies that announce a stock split rally an average of 25 percent over the following year – that’s more than double the 11.9 percent gain for the overall S&P 500 in the same period.
An uber-rich stock price can also keep a stock out of mutual funds, ETFs, and high-profile indices like the venerable Dow Jones Industrial Average. Since the Dow is price-weighted index, a $1200 stock like Nvidia would have too much sway. But, a post-split, $120 stock – could pave the way for Nvidia not only to keep on influencing the AI world, but also have greater influence on the investing world.
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