The moment many investors were waiting for has finally arrived: Nvidia (NASDAQ: NVDA) plans to split its shares on June 7. This comes after shares rose more than 3,000% in five years, rising above $1,000 in recent days.
This impressive stock performance is due to the company’s dominance in the artificial intelligence (AI) chip market. The tech giant sells the graphics processing units (GPUs) that power some of the most crucial AI tasks, such as training and inference, as well as a wide range of other AI products and services. This has led to Nvidia’s revenue rising to record levels quarter after quarter.
Why are investors so excited about Nvidia’s stock split? The operation involves offering additional shares to current holders, lowering the price of each individual share and therefore making the price per share more affordable to a wider range of investors. Let’s take an in-depth look at what to expect from the upcoming stock split – and from Nvidia afterward.
Trade at a lower price
First, as mentioned, a stock split lowers the price of each share. But this type of operation does not change the overall market value of the company or of your holding company if you already own the shares. So it’s just a mechanical operation, and therefore a stock split in itself is not a reason to buy or sell a particular stock.
Stock splits are not known to help or hurt stock performance in the days following surgery. But they represent good long-term moves for companies in Nvidia’s situation: growth players with strong prospects that have seen their shares soar to extraordinarily high levels.
For example, the $1,000 price point could make it difficult for some investors to buy the stock unless they have access to fractional shares — and certain brokers don’t offer them. So by splitting its shares, Nvidia is making it easier for a greater number of investors to buy the shares immediately and in the months (and possibly even years) to come.
Now let’s talk about the operation itself. Nvidia conducts a forward stock split, which is the most common form of split. This means that more shares are offered to current holders.
Nvidia’s 10-for-1 split means that if you own one Nvidia share, you’ll receive another nine as part of the operation. To get the extra shares, you must be an Nvidia shareholder on the record date, which is June 6. (That said, if you buy or sell the shares the next day, the right to new shares passes to the new owner.)
Nvidia will distribute the new shares at the end of the next trading day, which is Friday, June 7. And the shares will begin trading at the split-adjusted price on June 10. Given the current stock price of $1,095, the stock on June 10 should be around $109.
Investors don’t have to lift a finger
If you’re an Nvidia shareholder, you won’t have to lift a finger before, during or after the stock split and you’ll automatically own a larger number of shares once the operation is complete. If you’re about to buy Nvidia stock this week, you can continue with your purchase as usual – and you’ll receive the additional shares as well. So you don’t have to do anything special for the stock split: you can buy or sell Nvidia as you normally would at any time before or during this operation.
Nvidia stock will trade at a lower price per share starting Monday, but don’t expect the stock to rise for this reason. As I said, stock splits are not a catalyst for stock performance. That said, Nvidia could continue to rise in the coming weeks and months thanks to its earnings performance and demand for chips and related products. The company will release the Blackwell architecture and associated chip – potentially game-changing innovations – later this year, and anticipation could send the stock soaring.
All of this means that this is indeed an exciting time for Nvidia and its shareholders, and even though the stock split itself won’t impact stock performance, it’s still a smart move for the long term. And in the near term this week, the stock split will certainly keep investors’ eyes on Nvidia.
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Adria Cimino has no positions in the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
Nvidia’s stock split will take place on June 7. Here’s what to expect. was originally published by The Motley Fool
