NVIDIA recently announced a 10-for-1 stock split, joining other companies like Walmart and Lam Research that have made similar moves. The stock split is aimed at making the share price more affordable for both retail investors and company insiders. There is speculation that Nvidia may be looking to be included in the Dow Industrials, a blue-chip index where share price plays a significant role in determining which companies are included and how much they impact the index.
On a price-weighted average like the Dow, an expensive stock has more influence than a cheap stock because what matters is the dollar value of the stock. Despite the percentage of movement being the same, a $1 move in a $100 stock has the same effect as a $1 move in a $10 stock. If Nvidia were added to the Dow after its split, it would be the third company by market capitalization but would rank 22nd when sorted by share price. Its annual volatility is expected to have a significant impact on the index.
UnitedHealth Group has a high average daily movement due to its large stock price, while companies like Coca Cola and Cisco have low volatility and are expected to only contribute minimally to the daily movement of the Dow Jones.
A stock split does not impact a company’s fundamentals but is more of a psychological factor for investors. While fractional trading and exchange-traded funds have made high-priced equity issues less significant, a lower share price can still make a difference, especially in the options market where contracts are typically based on 100 shares.
Overall, the stock split by NVIDIA is expected to make its shares more accessible to a wider range of investors and may potentially have an impact on its inclusion in major stock indices like the Dow. The move reflects a trend among companies to make their shares more affordable and appealing to a broader investor base.
Article Source
https://www.cnbc.com/2024/05/26/heres-what-adding-nvidia-would-mean-for-the-128-year-old-dow-industrials.html