These are exciting times for Nvidia and its shareholders.
The moment many investors were waiting for is finally here: Nvidia (NVDA 3.55%) is set to split its stock on June 7. This comes after the stock soared more than 3,000% in five years, surging past $1,000 in recent days.
This showstopping stock performance is thanks to the company's dominance in the artificial intelligence (AI) chip market. The tech giant sells the graphics processing units (GPUs) that power some of the most crucial AI tasks, such as training and inferencing, as well as a wide variety of other AI products and services. This has pushed Nvidia's revenue to record levels quarter after quarter.
So, why are investors so excited about the Nvidia stock split? The operation involves offering additional shares to current holders -- bringing down the price of each individual share, and therefore making the per-share price more affordable for a broader range of investors. Let's take an in-depth look at what to expect from the upcoming stock split -- and from Nvidia afterward.
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Trading at a lower price
First, as mentioned, a stock split lowers the price of each share. But this sort of operation doesn't change the overall market value of the company or of your holding if you already own the stock. So it's simply a mechanical operation, and that's why a stock split in and of itself isn't a reason to buy or sell a particular stock.
Stock splits aren't known to help or hurt stock performance in the days following the operation. But they represent good long-term moves for companies in the situation of Nvidia: growth players with strong prospects that have seen their shares soar to extraordinarily high levels.
For example, the price level of $1,000 may make it difficult for some investors to buy the stock unless they have access to fractional shares -- and certain brokerages don't offer these. So, by splitting its stock, Nvidia makes it easier right away and in the months (and possibly even years) to come for a greater number of investors to buy the shares.
Now, let's talk about the operation itself. Nvidia is doing a forward stock split, which is the most common sort of split. This involves offering more shares to current holders.
Nvidia's 10-for-1 split means that if you hold one Nvidia share, you'll receive an extra nine as part of the operation. In order to get the extra shares, you must be an Nvidia shareholder on the record date, which is June 6. (That said, if you buy or sell the shares the next day, the right for new shares transfers to the new owner.)
Nvidia will distribute the new shares at the end of the next trading day, which is Friday, June 7. And the stock will begin trading at the split-adjusted price on June 10. Considering today's share price of $1,095, the price on June 10 should be around $109.
Investors don't have to lift a finger
If you're an Nvidia shareholder, you don't have to lift a finger before, during, or after the stock split, and you'll automatically find yourself with a greater number of shares once the operation is complete. If you're about to buy Nvidia stock this week, you can go ahead with your purchase as usual -- and you'll also receive the extra shares. So the stock split doesn't require you to do anything in particular -- you can buy or sell Nvidia as you generally would at any point ahead of or during this operation.
Nvidia stock, as of Monday, will start trading at a lower price per share, but don't expect the stock to surge for this reason. As I mentioned, stock splits aren't catalysts for stock performance. That said, Nvidia could continue to gain in the coming weeks and months due to its earnings performance and demand for its chips and related products. The company is set to release the Blackwell architecture and related chip -- potentially game-changing innovations -- later this year, and anticipation of this may keep the shares climbing.
All of this means that, yes, this is an exciting time for Nvidia and its shareholders, and even though the stock split itself won't impact share performance, it's still a smart long-term move. And in the short-term time frame of this week, the stock split surely will keep investors' eyes on Nvidia.
Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
