In their first-quarter results, microchip maker Nvidia announced a 10 for 1 stock split. This means that shareholders of the company’s common stock as of June 6 will receive nine additional shares for every share held after the market closes on June 7. The purpose of the stock split, according to Nvidia management, is to make stock ownership more accessible to employees and investors.
Following the announcement, Nvidia’s stock price surpassed $1,000 in premarket trading and is expected to decrease to about a tenth of its pre-split level when it begins trading on a split-adjusted basis on June 10. The stock split will not change the company’s market capitalization of around $2.5 trillion, as the ownership is simply divided into smaller parts without affecting the overall value of the entity.
Although the stock split may not directly impact the company’s market capitalization, it could lead to other changes. By significantly reducing the price of a single share, Nvidia’s stock becomes more accessible to smaller shareholders, potentially increasing demand. Additionally, there is speculation that Nvidia may be added to the price-weighted Dow Jones Industrial Average, expanding its shareholder base to include passive investors in that index if it joins other Big Tech companies like Apple, Amazon, and Microsoft.
Nvidia’s stock split comes after a significant 550% increase in its share price, driven primarily by the rise of artificial intelligence (AI) technology. The company has become a key player in providing graphics processors to companies like Tesla and Meta. Stock splits are not uncommon in the market, with other companies like Tesla and Chipotle also executing splits to make their shares more accessible to a broader range of investors.
Even prominent investor Warren Buffett, who has traditionally avoided splitting Berkshire Hathaway’s Class A shares, implemented a split of the company’s Class B shares in 2010. This decision aimed to improve liquidity, make the shares more accessible, and potentially lead to inclusion in more indexes.
Overall, Nvidia’s stock split reflects a strategic move to enhance shareholder accessibility and potentially drive increased demand for its shares. The company’s presence in the market and the positive response to the stock split demonstrate investor confidence in Nvidia’s future growth prospects.
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https://www.businessinsider.com/nvidia-stock-price-split-earnings-ai-tech-microchips-investing-index-2024-5