On Friday, after the close of trading in the USA, there will be a stock split of the artificial intelligence giant Nvidia. The price of one share will drop from over $1160 to around $116. This move will make the shares more accessible to individual investors. However, this maneuver does not change the fundamentals of the company.
Nvidia has decided to assist individual investors by planning a stock split at a ratio of 10:1. This means that the price of one share will drop from a high level of over $1160 to $116. As a result, purchasing shares will become easier, especially for individual investors who usually have smaller investment amounts compared to institutional investors. The split will occur on June 7th after the market closes in the USA, around 10:30 PM CET. At the moment before the split, Nvidia is the ninth most expensive stock within the S&P500 index. This poses a barrier for many investors who, through their brokers, do not have the option to purchase fractional shares. The high stock price also makes it difficult for individual investors to construct portfolios as they typically have more limited funds. The lower stock price might also enable Nvidia to aim for a position in the Dow Jones Industrial Average, although it faces significant competition from companies like Amazon, Apple, and Alphabet. It could potentially replace stocks such as Intel in this index. However, such adjustments in the DJIA are rare.
The lower stock price does not alter the company’s fundamentals. It may, however, open the company to a broader investor base and improve liquidity. Historical data shows that stock splits usually result in an increase in the number of retail shareholders and a rise in stock prices. It’s important to note that while fractional shares are becoming more popular, not all investors have access to them.
Some companies deliberately choose not to split their stocks, focusing on more “serious” institutional investors and ETF funds. Some firms even associate a high stock price with greater prestige. Currently, the most expensive single stock in the S&P500 index is held by the American construction and financial company NVR, with one share costing as much as $7,500. This trend diverges from the growing importance of individual investors in the market. The number of shares held by American households is at a record high, and 25% of individual investors are new to the market. This is especially relevant as stock prices in the American market have risen significantly recently, making expensive stocks even more costly. Individual investors continue to be marginalized, not only by the avoidance of splits but also in new issuances, investor events, voting, and access to management. While there have been improvements in this area, much remains to be done.
Paweł Majtkowski, eToro analyst in Poland
