NVIDIA stock split is here! Investors holding the "AI leader" take note

"The most important stock on Earth", the AI leader NVIDIA, will implement a 10-for-1 stock split this week.

After continuous large gains in recent trading days, the overnight market value has surpassed Apple, ranking as the second largest company in the United States, with a stock price exceeding $1200. After the split, NVIDIA's stock price will be around $120, making it more affordable and attracting more retail investors to participate.

The stock split of NVIDIA will take effect after the market closes on Friday. As of Thursday, investors holding the stock will receive 9 additional shares per share held, and the stock price will be adjusted accordingly to reflect the split.

A stock split is an action that increases the number of shares by a certain ratio while proportionally reducing the face value per share, thereby lowering the price per share. Stock splits are a common strategy adopted by companies to attract investors and increase liquidity. In theory, a split itself does not change the actual value of the company, as although the stock price decreases, the total number of shares outstanding also increases, keeping the product of the two constant.

After a stock split, the original shareholders' ownership percentage remains unchanged. A stock split simply divides the existing shares into more shares proportionally, increasing the number of shares held by shareholders while maintaining their ownership percentage in the company. For example, in a 2-for-1 stock split, each share is split into 2 shares, but the ownership percentage remains the same. The company will also make "ex-rights and ex-dividend" adjustments, and the stock price will be adjusted according to the split ratio to maintain consistent market capitalization before and after the split, avoiding damage to shareholder equity.

Therefore, a stock split only changes the face value and issuance quantity of the stock, without affecting the company's net asset value, net assets, and actual value. The items on the company's balance sheet remain unchanged.

NVIDIA has undergone several stock splits in history. In 2000, 2001, and 2006, the stock was split at a ratio of 2:1. In 2007, NVIDIA split the stock at a ratio of 3:2.

However, historical data shows that stock splits are not a catalyst for stock price increases. An analysis of 240 stock split cases in the US stock market in recent years shows that these stocks had an average increase of only 0.44% in the two weeks after the split, with less than half of the cases outperforming the S&P 500 index. The average return of these stocks in the six months after the split was 6.6%, slightly higher than the 5.4% return of the S&P 500 index during the same period.

When looking at large stocks with a market capitalization exceeding $100 billion and a pre-split stock price exceeding $400, the performance after the split is even worse. These stocks on average experienced a loss of 2.66% in the six months after the split, with only 37.5% of cases showing positive returns, while the average return of the S&P 500 index during the same period was 3.8%.

This may be due to the fact that the stock prices of these large stocks were already at relatively high levels before the split, facing high valuation pressure and limited upside potential.

However, NVIDIA's historical data tells a much more impressive story. After the split in 2021, NVIDIA surged nearly 40% within 6 months. Since the last split, NVIDIA's stock price has risen by over 500%.