The big moment is here. After the market closes today, Nvidia (NASDAQ:NVDA) will complete its 10-for-1 stock split, a move that will drive the price of this high-flying stock down from about $1,200 to more than $120. Nvidia shares have soared – more than 500% in the past three years – thanks to the company’s leadership in the fast-growing market for artificial intelligence (AI) chips.
Why is Nvidia splitting its shares, you might ask? Nvidia answers the question itself: “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 more investors to buy shares, because the price of each share will be lower.
So now that this long-awaited event is happening, let’s find out what it means for Nvidia – and for you.
From gaming to AI
First, a quick summary of Nvidia’s journey so far. Nvidia generated most of its revenue in the video game industry, with its graphics processing units (GPUs) powering the intense visuals needed for games. But times have changed. Although the company’s GPUs still serve gaming customers, Nvidia now makes the lion’s share of its revenue selling these extremely powerful chips to AI customers.
The tech giant’s revenue has soared by triple digits quarter after quarter and recently hit a new record of $26 billion thanks to this transition. Nvidia’s GPUs are the fastest on the market, and that’s why the company has secured more than 80% of the AI chip market. Of course, competitors release new chips regularly, but Nvidia’s promise to continue innovating could keep it in the leadership position in the long term.
Now let’s talk about Nvidia stock split. These transactions involve issuing more shares to current holders in order 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 participation. It is simply a mechanical operation.
Nvidia’s split involves issuing new shares on a 10-to-1 basis to current holders after the close of trading today, and shares will begin trading on a split-adjusted basis on Monday. This means that if you own one share of Nvidia stock, you will receive nine more. Your 10 shares are still worth the same as your share before the split. And that of Nvidia the valuation remains unchanged, so the stock is not “cheaper”, even if it is more affordable to you on a per share basis.
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 is transferred to the new owner, meaning no one is left behind. So you can buy or sell Nvidia stock like you would any other day. But if you buy or sell the stock on Monday, it will be at the new price.
Now let’s return to our question. What is the purpose of this operation, since it is just a…
