Nvidia stock split explained
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.
In case you haven't heard, Nvidia (NVDA) is kind of a big deal, and today, it's an even bigger deal.
Nvidia's 10-for-one stock split is set to take effect after Friday's closing bell.
TheStreet's Conway G. Gittens breaks down why this is a stock split like no other in the video above.
Related: Why a veteran fund manager sold some Nvidia stock before its 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.
What Our Experts Have to Say About Nvidia:
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.
How Nvidia Became The World's Second Most Valuable Company:
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