The big moment has arrived. After today’s market close, Nvidia (NASDAQ: NVDA) will complete the 10-for-1 stock split, an operation that will lower the price of this high-flying stock from about $1,200 to about $120. Nvidia shares have soared – more than 500% in the past three years – thanks to the company’s leadership in the fast-growing artificial intelligence (AI) chip market.
Why is Nvidia splitting its stock, you may ask? Nvidia itself answers the question: “To make stock ownership more accessible to employees and investors,” the company said during its earnings report late last month. This does not change the overall market value of the company. But it makes it easier for a wider range of investors to buy the shares because the price of each share will be lower.
So now that this long-awaited event is happening, let’s take a look at what it means for Nvidia – and for you.
From gaming to AI
First, a quick recap of Nvidia’s path to this point. Nvidia generated most of its revenue in the video game industry, with its graphics processing units (GPUs) powering the intense visuals needed in gaming. But times have changed. While the company’s GPUs still serve gaming customers, Nvidia now makes the lion’s share of its revenue by selling these extremely powerful chips to AI customers.
The tech giant’s revenue has grown by triple digits quarter after quarter and recently rose to a new record of $26 billion thanks to this transition. Nvidia’s GPUs are the fastest available, which is why the company has captured more than 80% of the AI ​​chip market. Sure, rivals release new chips regularly, but Nvidia’s promise to keep innovating could keep the company in the leading position in the long run.
Now let’s talk about Nvidia’s stock split. These operations involve issuing more shares to current holders to lower the price of each individual share – but as I noted above, they do not change the overall market value of the company or the value of your holdings. It’s just a mechanical action.
The Nvidia split will involve the issuance of new shares on a 10-to-1 basis to current holders after the close of trading today, and the shares will begin trading Monday on a split-adjusted basis. This means that if you own one Nvidia share, you get nine more. Your 10 shares will still be worth the same as your one share before the split. And Nvidia’s valuation remains unchanged, so the stock isn’t “cheaper,” even if it is more affordable to you per share.
What happens if you buy Nvidia today?
What happens if you buy or sell Nvidia stock today while the split is happening? The right to the new shares passes to the new owner, meaning no one is left behind – so you can buy or sell Nvidia shares as you would any other day. But if you buy or sell the shares on Monday, the new price applies.
Now let’s get back to our question. Since it is only a mechanical operation, what does this operation mean for Nvidia and for you as an investor? A stock split is not a catalyst for stock performance, so I don’t expect the stock to rise or fall significantly on Monday – unless unrelated news provides direction.
But over time, this lower price per share should make it easier for more investors to access Nvidia stock, and this is a positive for the company and for you as a shareholder. And if you are not an Nvidia shareholder but are considering buying the shares, you can invest a smaller amount, such as a little over a hundred dollars for one share.
Before the split, you would have had to invest this amount in fractional shares to gain access to Nvidia. The problem here is that some brokers don’t offer fractional shares – and some investors simply prefer to buy full shares.
All this means that today’s stock split is a sensible long-term move for Nvidia, and it gives you the opportunity to easily get into this growth story at a lower price per share.
Should You Invest $1,000 in Nvidia Now?
Consider the following before buying shares in 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.
What the Current Stock Split Means for Nvidia (and You) was originally published by The Motley Fool
