A stock split is a corporate action that aims at making equities more approachable to certain investors. Depending on the specifics of the process, it can have great psychological and practical consequences for a firm and its investors. 

In this article, we will further elaborate on the idea of stock splits as well as consider the types of stock splits and the results of NVIDIA’s 10-for-1 stock split. Dive in for getting the answers to the most common question, like when will NVIDIA stock split next.

What is a Stock Split?

A stock split refers to a process whereby a company offers additional shares to its shareholders as a way of expanding the number of these shares. This action is always followed by a corresponding reduction in the share price and that way the total quantity of shareholders’ equity remains constant. For instance in a 2 for 1 stock split, a shareholder, who holds one share with a $100 value, will be holding two shares with $50 value each.

Nevertheless, the primary purpose of a stock split involves reducing the price of the share to a common level which will easily be accessible by the public hence improving its liquidity. Even though the value of each share declines, the overall stock worth of the shareholder stays the same.

Types of Stock Splits

1. Forward Stock Split: This is the most common, where a firm issues more shares than it has by issuing new shares to its current shareholders. The value and price of each share is lowered in order to increase the number of shares. For instance, in a 3 for 1 stock split, a stockholder with 100 shares of stocks will now own 300 shares but at a lower price per share.
2. Reverse Stock Split: A reverse stock split on the other hand leads to increase in the price of the share while reducing the number of issued shares of the company. This is done sometimes to justify certain minimum prices for stock exchange or to attract certain institutional investors. For instance, a one-for-five reverse stock split means that 100 shares diluted to 20 shares but with each share having a higher price.

Why Do Companies Opt for Stock Splits?

Companies opt for stock splits for several reasons:

• Enhanced Liquidity: When share prices are low, more investors are able to purchase stocks, which may lead to higher trading volume or liquidity. This is especially true for firms such as NVIDIA since their high stock prices may discourage retail investors.
• Psychological Appeal: A lower share price after a split may have the psychological aspect of making the stock more attractive to new buyers and in turn increase its demand.
• Market Accessibility: It also makes stocks affordable to the low individual investors who may not afford to invest in high valued stocks.
• Index Considerations: Stock splits also aid in keeping or regaining the company’s stock in major stock indexes since most indexes possess various requirements concerning the stock price.

Impact of Stock Splits on Investors

For investors, stock splits can have various implications:

• Perceived Value: While a stock split does not alter the business worth it can impact the way shareholders view the stock. This can be supported by the fact that low price per share can create higher demand due to larger quantity of buyers.
• Increased Liquidity: Higher availability of shares at a cheaper price has a positive impact in the number of transactions that can occur for the stock.
• Dividend Adjustments: If the company declared the dividends will be paid, then the amount per share will be split. Conversely, the total payout is the same if the payout ratio is kept constant by the company.
• Tax Implications: Normally, stock splits do not initiate taxes since they do not involve any additional assets; it only alters the quantity of shares owned.

Case Study: NVIDIA’s Recent Stock Split

The technology and semiconductor industry giant NVIDIA declared a 10-for-1 stock split in June 2024. This split rendered NVIDIA’s high-priced shares more accessible to potential investors, helping the company achieve its goals of increasing liquidity and accessibility.

Prior to the split, shares of NVIDIA were priced at roughly $1,200. After the split shares were sold for about $120 a share and every shareholder was to get nine new shares for each they previously owned. This change did not alter the total investment available to shareholders; it merely increased the number of shares owned and decreased the cost per share.

Why Did NVIDIA Opt for a Stock Split?

NVIDIA’s decision to split its stock was driven by several factors:

• Affordability and Accessibility: When the company decided to reduce the per share price, it was easier for the retail investors especially those that could not afford the shares at the previous rates.
• Market Sentiment: Stock splits tend to entice the public since it generates a positive market sentiment. While a split does not alter the essence of a company, it may lead to the growth of interest and speculative trading of the stock.
• Aligning with Competitors: Other tech firms such as Apple, Tesla, and Amazon have also embarked on stock splits in the recent past, making their stocks easily affordable to the public. NVIDIA’s stock split enables the company to remain relevant in chasing retail investors.

Will NVIDIA stock split again and have it in the past?

Since its IPO in 1999, NVIDIA Corporation has declared five stock splits. Here’s the chart:

These splits have been in line with NVIDIA’s plans to retain its shares’ affordability to a wide market following the growth in its stock price, this indicates its a positive for will NVIDIA stock split in future. It is due to splendid growth and dominance in the production of GPUs.

The Impacts of NVIDIA Stock Split

The first effect of the recent stock split was to reduce the price per share from approximately $1,200 to $120. However, this technical correction did not deter investors from focusing on NVIDIA stock as its fundamentals and growth prospects remained attractive especially in AI and semiconductor industries. 

Here are details on its key impacts:

• Market Capitalization and Ranking: Before the split, NVIDIA for a short time became the second most valuable company in the world surpassing Apple. However, the post-split adjustments and market volatility led to Apple reclaiming the 2nd position, while NVIDIA maintained the 3rd position behind Microsoft.
• Investor Sentiment and Predictions: Some analysts welcomed the split with excitement while others were indifferent or had negative reactions. Some viewed it as a strategy that may help get more investors and cause the price of the shares to rise because of this. Some of them were more reserved, suggesting that the stock price may fluctuate in the near future after the split.

The Broader Implications of Stock Splits

Some of the broader issue which relate to stock splits are as follows:

• Psychological Effects: A low stock price is perceived by the retail investor to be more ‘affordable’ as they increase the volume of purchases, which could push the price of the stock up again after the split.
• Market Behavior: This has made stocks that split perform very well initially after the split, as they attract a lot of attention and demand for the shares. However, this is not always the case and often depends on the market forces and the general attitudes of investors.
• Long-Term Performance: Although splits always generate short-term trading interest, the trends in its stock price depend on the firm’s characteristics. For NVIDIA, whether there is a split or not, its strength in AI and semiconductors guarantee further growth.

Conclusion

Although the split does not alter the intrinsic value of the company, the psychological and real impact which derives from it proves to be relevant. With NVIDIA as a leader in the technology field, the concern of will NVIDIA stock split is mostly likely to post a positive impact, meaning more investors would flock to the market to own a share of NVIDIA’s stock.

FAQs

1. Will NVIDIA stock split again?

There is no confirmation on this yet from the official sources. However, based on its past history, there are high chances for the event to occur again after a period.

2. Does a stock split affect the value of one’s stock? 

No, a stock split does not alter the overall value of the investment you have in a particular stock. It raises the number of shares owned by a person while at the same time lowering the price per share.

3. What happens to the market capitalization of the firm when it undertakes a stock split? 

A stock split does not change a company’s market capitalization. The value of the company stays constant as the number of shares increases and the price per share decreases in the same proportional ratio.