The moment many investors were waiting for is finally here: Nvidia is set to split its shares on June 7th. The split ratio is 10:1, which means that the price of a share will reduce 10 times from a maximum of over $1200.
This will make it easier to buy shares, especially for individual investors who tend to have smaller amounts to invest than institutional investors. The split will take place after the US market closes, around 23:30 EET and trading is expected to commence on a split-adjusted basis at market open on Monday, June 10, 2024.
Nvidia had the 9th highest share price of all the S&P 500 constituents, well below the $7,500 of builder NVR, and much less than the over $615,000 of Warren Buffett’s Berkshire Hathaway class A stock. But its over $1100 price was an increasing obstacle to retail investors being able to hold a diversified portfolio, with many retail investors having access to fractional ownership programs. Also, according to the latest eToro Retail Investor Beat survey of 10,000 self-directed investors in 13 countries, 80% of retail investors have portfolios of under $120.000 with 64% having portfolios below $.60.000. That is why, an over $1000 stock would have been difficult to buy and balance in small portfolios.
A lower share price does not change the fundamentals of a company. However, it may open it up to a wider investor base and improve liquidity. Historical data shows that splits usually lead to an increase in the number of retail shareholders and a rise in share prices. According to Statista, overall, companies that split their stock saw an average total return of 25.4% in the 12 months that followed the announcement of their split compared with only 12% of the broader index. That’s more than twice the average return of the S&P 500 during those periods. Also, companies that performed the split after 2010 managed to return 18.3% compared with 13.3% of the S&P 500 index.
Nvidia is not at its first split. It completed five so far, from June 2000 until 2021 with a cumulative multiple of 48x. This means that if you have bought one stock at launch and kept it you will have 480 on Monday, after the completion of the 6th split. In a similar fashion one would have 224 Apple, 288 Microsoft, 192 Intel and 12 AMD stocks. But a split isn’t a guaranteed short-term gain. In the two most recent Nvidia splits, the stock has lost ground in the following year, dropping 10% in 2021 and 70% in 2007. However, from its beginning the stock price gained over 290.000%. Therefore investors will have to look now at the broader picture and will have to follow their investment plans.
