The microchip maker announced a 10-for-1 stock split in its first-quarter earnings on Wednesday. The move means anyone who owns the company’s common stock when the market closes on June 6 will receive nine additional shares for every share they own after the next day’s market close.
Nvidia’s management said the goal of the stock split was to “make stock ownership more accessible to employees and investors.”
The stock cracked $1,000 in premarket trading on Thursday. It should fall to around one-tenth of its pre-split level when it begins trading on a split-adjusted basis on June 10.
The semiconductor giant’s market capitalization of about $2.5 trillion won’t change as a direct result of the split. Ownership of the company is simply being divided into smaller pieces with no effect on the value of the whole entity.
However, the stock could move for other reasons. Slashing the price of a single share will make it more accessible to smaller shareholders, potentially increasing demand.
It could also fuel speculation that Nvidia might be added to the price-weighted Dow Jones Industrial Average. If the AI behemoth joins Big Tech peers such as Apple, Amazon, and Microsoft, that would broaden its shareholder base to include all the passive investors in that index.
Price cuts for pricey stocks
The split follows a 550% rise in Nvidia’s stock price from under $150 at the start of 2023 to about $1,000. Nvidia has emerged as one of the biggest winners from the AI boom, as companies like Tesla and Meta clamor for its graphics processors.
Stock splits are not uncommon. Elon Musk’s Tesla has executed two since 2020, reflecting the massive surge in the EV maker’s share price.
Chipotle approved a 50-for-1 stock split in April, saying it would make its shares “more accessible to employees as well as a broader range of investors.”
The fast-casual restaurant chain’s stock trades at more than $3,100 a share, making it prohibitively expensive for many workers and retail traders (assuming they don’t want to purchase fractional shares on a platform like Robinhood.)
Regaining flexibility
Even Warren Buffett, who has never split Berkshire Hathaway’s Class A stock despite it now trading at over $625,000 a share, enacted a 50-for-1 split of the Class B stock in 2010.
He did so because Berkshire was acquiring a railway company, and he wanted its shareholders to be able to easily exchange their shares for Berkshire shares in a tax-free swap.
The split also paved the way for Berkshire to replace Burlington Northern in the S&P 500 by hugely increasing the liquidity of its shares. The B shares trade at about $414, a fraction of the A shares’ price.
Nvidia is already an S&P 500 member. But like Berkshire, it’s probably hoping its stock split improves liquidity, makes its stock more accessible to employees and investors and a more flexible currency for acquisitions, and perhaps leads to inclusion in more indexes.
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