Why Nvidia's stock split is so important to Wall Street

The Street

Here's everything you need to know about Nvidia's stock split.

Transcript

00:00You'll be forgiven if you have NVIDIA Envy.

00:03The stock is on a tear,

00:04crossing $1,200 a share at its peak.

00:07Feels too rich for your blood?

00:09There might be a better chance to get in on the action

00:11because NVIDIA is getting a 10 for one stock split.

00:15To be clear, every existing share

00:17will be split into 10 new shares.

00:20Now, if this is your first stock split,

00:22think of it like a pizza pie.

00:24The size of a total pie and the price for that pie

00:27are the same no matter how you slice it.

00:29But the more you slice the pie, the smaller the piece is,

00:32and the more people get to eat.

00:34So let's get back to NVIDIA.

00:36Let's say an investor holds one share of NVIDIA

00:38at $1,200 before the split.

00:40After the split, that investor holds 10 shares

00:43at $120 a piece.

00:45Do the math.

00:46That still equals the original $1,200.

00:49So why split a stock?

00:51One reason is liquidity.

00:53That's a fancy way of saying flexibility.

00:55The higher a stock price,

00:57the less flexibilities buyers and sellers have.

01:00If you're still a person who uses a lot of cash,

01:03you know what I mean.

01:04Which bill gets used the most?

01:05The $1 bill or the $50 bill?

01:08You guessed it, the smaller currency

01:10because there is more flexibility, less risk.

01:14When a stock is in the stratosphere like NVIDIA,

01:17a stock split makes it more manageable to handle,

01:20and that can pay off for shareholders.

01:22Stocks that split usually do better

01:25than the benchmark S&P 500.

01:27According to B of A Global Research,

01:29companies that announce a stock split

01:31rally an average of 25% over the following year.

01:35That's more than double the 11.9% gain

01:38for the overall S&P 500 in the same period.

01:42An uber-rich stock price can also keep a stock

01:45out of mutual funds, ETFs, and high-profile indices

01:49like the venerable Dow Jones Industrial Average.

01:52Since the Dow is price-weighted,

01:54a $1,200 stock like NVIDIA would have way too much sway,

01:59but a post-split $120 stock could pave the way

02:04for NVIDIA not only to keep on influencing the AI world,

02:08but also have greater influence on the investing world.

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