Four things you must know before Nvidia's stock split

Moomoo Learn joined discussion · Jun 6 14:36

$NVIDIA (NVDA.US)$'s rallied to record highs on Wednesday, with the artificial intelligence chipmaker's valuation breaching the $3 trillion mark and overtaking $Apple (AAPL.US)$ to become the world's second most valuable company on June 5th. Now it's only one step away from $Microsoft (MSFT.US)$'s market value of 3.15 trillion US dollars.

NVIDIA, the global leader in AI, surpassed the market expectations with its Q1 earnings report.

The day after the earnings release, the stock price broke through the $1,000 mark to reach a new high on May 23, 2024.

Four things you must know before Nvidia's stock split

Stellar earnings growth is undeniably a key driver of NVIDIA's surging stock price. Additionally, NVIDIA's announced stock split plan seems to have further sparked investor enthusiasm.

What is a Stock Split?

Beyond the earnings report, NVIDIA planned a 10-for-1 stock split from June 10th. As the market closes on June 6th, shareholders will receive nine additional shares for each share they own.

Additionally, NVIDIA will increase its cash dividend per share from $0.04 to $0.10, marking a 150% increase in the quarterly dividend.

While the increase in dividends is straightforward, what is a stock split? Simply put, if an investor holds 10 shares of NVIDIA before the split, they will own 100 shares after the split. And the new share price will be one-tenth of the original share price.

Why Undertake a Stock Split?

Why is NVIDIA opting for a 10-for-1 stock split? Typically, companies implement stock splits as a strategy to adjust the stock price when it has risen significantly, making it more accessible to investors who might not afford the high price per share.

NVIDIA's current stock price has surpassed $1,000, and its continued rise has made the individual share value quite high, restricting participation from some individual investors.

Moreover, a stock split is often seen as a sign of confidence by the company in its stock price and future growth. This may raise market expectations and further boost the stock price.

In fact, this is not NVIDIA's first stock split. On May 26, 2021, NVIDIA announced a 4-for-1 stock split, and following the announcement, NVIDIA's stock price surged by 27% in just a few days.

Benefits of a Stock Split for Investors?

For NVIDIA, the post-split price per share becomes one-tenth of the original price, lowering the investment barrier and allowing more investors to participate. Additionally, the increase in dividends might attract investors seeking passive income.

Although the number of shares increases, the total market capitalization of the company and the total equity of shareholders remain unchanged.

However, a stock split can influence investors' perceptions and investment decisions.

On one hand, the dual benefits of a stock split and increased dividends may boost market confidence in NVIDIA, potentially driving stock prices higher.

On the other hand, a stock split can raise market expectations for the company’s future performance. If NVIDIA continues to grow, the stock price is likely to keep rising.

Any Investment Opportunities?

After NVIDIA announced its stock split plan, its stock price may experience fluctuations.

Value investors should continue to focus on the company's fundamentals and growth potential.

Meanwhile, technical investors might watch for the stock price to break through resistance or support levels. It’s also important for them to set profit-taking and stop-loss points in advance.

What do you think will be the impact of NVIDIA's stock split on its future development? Feel Free to leave your comments!

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