Nvidia announced a 1-for-10 stock split plan. After the close on June 7, shareholders holding Nvidia common stock will receive an additional nine shares, and trading will begin on a split-adjusted basis from June 10.
What is a Stock Split?
On May 23, NVIDIA announced a 1-for-10 stock split, effective from June 10. This means that for every one share of NVIDIA stock an investor owns as of June 6, they will receive an additional nine shares, resulting in ten shares total after the split. These new shares will start trading on June 10.
Stock splits were once a common practice in the stock market, especially before the year 2000. When a company's stock price rises to a certain level, it can hinder trading volume and deter investors, particularly retail investors, from buying shares. A stock split lowers the price per share, making the stock more accessible to a broader range of investors. For example, Apple Tesla and Google have both executed stock splits to make their shares more affordable.
In the past, companies often chose to split their stock when prices exceeded approximately $100 per share. However, following the burst of the internet bubble in 2000, the frequency of stock splits among S&P 500 companies declined. Despite this, recent years have seen a resurgence in stock splits, especially among high-flying tech stocks like Apple and Tesla.
Impact of NVIDIA's Stock Split
While a stock split results in a lower stock price, it has no significant effect on the company's market value or underlying fundamentals. NVIDIA's long-term performance will still depend on its business fundamentals and market conditions. Historically, stock splits have often been followed by a short-term increase in stock price.
This could be attributed to several factors:
Investor Psychology: A lower stock price can attract more retail investors, increasing demand.
Enhanced Liquidity: Splitting the stock increases the number of shares available, improving liquidity and reducing transaction costs.
Market Confidence: Companies typically announce stock splits when they are performing well, signaling confidence in future growth.
What Happens to My Stock or Options After the Split?
Key Points to Remember
No Action Required: If you own NVIDIA shares, you don't need to do anything. The split will be automatically handled by Tiger Trade app, and additional shares will be deposited into your account by June 10.
Stock Price and Share Count: Post-split, the stock price will be divided by 10, and the number of shares you own will be multiplied by 10. For example, if you had 100 shares at $1,000 each before the split, you will have 1,000 shares at $100 each after the split.
Unchanged Market Value: The overall value of your investment remains the same immediately following the split. Only the number of shares and the price per share change.
If you own NVIDIA stock options, the split will also affect these. Post-split, the strike price and the cost of the options remain the same, but the number of shares each option controls will increase proportionally. For instance, after a 1-for-10 split, an option that previously controlled 100 shares will now control 1,000 shares.
After the split, NVIDIA's existing stock options will be adjusted and traded under a new symbol, which might result in lower liquidity compared to pre-split options.
If you have any questions or need further clarification, feel free to reach out. You can also share this post with anyone who might benefit from understanding the upcoming NVIDIA stock split. $NVIDIA Corp(NVDA)$
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