In case you haven't heard, Nvidia (NVDA) is kind of a big deal, and today, it's an even bigger deal, now the stock is trading after its 10-for-one stock split.
TheStreet's Conway G. Gittens breaks down why this is a stock split like no other in the video above.
Related: Analysts reset Nvidia stock price targets amid split, Dow entry talk
FULL VIDEO TRANSCRIPT:
You’ll be forgiven if you have Nvidia envy.
The stock is on a tear - crossing $1200 a share at its peak.
Feels too rich for your blood? There might be a better chance to get in on the action…because Nvidia is getting a 10-for-1 stock split.
To be clear, every existing share will be split into 10 new shares.
If this is your first stock split, think of it like a pizza pie: The size of a total pizza and the price for that pie are the same no matter how you slice it. But the more you slice the pie - the smaller the pieces - and the more people get to eat.
What Our Experts Have to Say About Nvidia:
So let’s get back to Nvidia…
Let’s say an investor holds one share of Nvidia at $1200 before the split. After the split, that investor holds 10 shares at $120 a piece - do the math - that still equals the original $1200.
So why split a stock? One reason is Liquidity. That’s a fancy way of saying flexibility. The higher a stock price, the less flexibility buyers and sellers have.
If you’re still a person who uses cash a lot, you’ll know what I mean. Which bill gets used the most - the $1 bill or the $50 bill? You guessed it, the smaller currency because there is more flexibility and less risk.
When a stock is in the stratosphere like Nvidia - a stock split makes it more manageable to handle.And that can pay off for shareholders.
Stocks that split usually do better than the benchmark S&P 500. According to BofA Global Research, companies that announce a stock split rally an average of 25 percent over the following year - that’s more than double the 11.9 percent gain for the overall S&P 500 in the same period.
An uber-rich stock price can also keep a stock out of mutual funds, ETFs, and high-profile indices like the venerable Dow Jones Industrial Average. Since the Dow is price-weighted index, a $1200 stock like Nvidia would have too much sway. But, a post-split, $120 stock - could pave the way for Nvidia not only to keep on influencing the AI world, but also have greater influence on the investing world.
