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Why Nvidia's stock split is so important to Wall Street
The Street
Follow
6/7/2024
Here's everything you need to know about Nvidia's stock split.
Category
🥇
Sports
Transcript
Display full video transcript
00:00
You'll be forgiven if you have NVIDIA Envy.
00:03
The stock is on a tear,
00:04
crossing $1,200 a share at its peak.
00:07
Feels too rich for your blood?
00:09
There might be a better chance to get in on the action
00:11
because NVIDIA is getting a 10 for one stock split.
00:15
To be clear, every existing share
00:17
will be split into 10 new shares.
00:20
Now, if this is your first stock split,
00:22
think of it like a pizza pie.
00:24
The size of a total pie and the price for that pie
00:27
are the same no matter how you slice it.
00:29
But the more you slice the pie, the smaller the piece is,
00:32
and the more people get to eat.
00:34
So let's get back to NVIDIA.
00:36
Let's say an investor holds one share of NVIDIA
00:38
at $1,200 before the split.
00:40
After the split, that investor holds 10 shares
00:43
at $120 a piece.
00:45
Do the math.
00:46
That still equals the original $1,200.
00:49
So why split a stock?
00:51
One reason is liquidity.
00:53
That's a fancy way of saying flexibility.
00:55
The higher a stock price,
00:57
the less flexibilities buyers and sellers have.
01:00
If you're still a person who uses a lot of cash,
01:03
you know what I mean.
01:04
Which bill gets used the most?
01:05
The $1 bill or the $50 bill?
01:08
You guessed it, the smaller currency
01:10
because there is more flexibility, less risk.
01:14
When a stock is in the stratosphere like NVIDIA,
01:17
a stock split makes it more manageable to handle,
01:20
and that can pay off for shareholders.
01:22
Stocks that split usually do better
01:25
than the benchmark S&P 500.
01:27
According to B of A Global Research,
01:29
companies that announce a stock split
01:31
rally an average of 25% over the following year.
01:35
That's more than double the 11.9% gain
01:38
for the overall S&P 500 in the same period.
01:42
An uber-rich stock price can also keep a stock
01:45
out of mutual funds, ETFs, and high-profile indices
01:49
like the venerable Dow Jones Industrial Average.
01:52
Since the Dow is price-weighted,
01:54
a $1,200 stock like NVIDIA would have way too much sway,
01:59
but a post-split $120 stock could pave the way
02:04
for NVIDIA not only to keep on influencing the AI world,
02:08
but also have greater influence on the investing world.
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