Week of 05/20-05/24 NVDA Earnings & Stock Split, Market Holds Gains

Stocks are ticking higher on Friday to finish another volatile week in the stock market. Nvidia was the highlight of the week, announcing yet another blockbuster earnings report along with the announcement of their upcoming 10-to-1 stock split. The company's shares will begin trading on a split-adjusted basis at the market open on June 10th. After-hours trading sent NVDA's stock surging past the $1,000 per share mark; and the stock continued to rise throughout the next day market session, marking an all-time high at $1,063.20. The chipmaker also stated an increased to its quarterly cash dividend from 4 cents per share to 10 cents on a pre-split basis. After the split, the dividend will be a penny a share. Stock splits do not change the financial fundamentals of a company, but they make each share cheaper; which can have a positive psychological effect on retail investors. Nvidia said the stock split will make ownership “more accessible to employees and investors". Tech companies with expensive shares may be inclined to follow their peers into splitting. Microsoft and Meta, for example, have shares prices that are over $500, posing as potential split candidates.

Pros and Cons of a Stock Split

A stock split has several advantages. First, it makes the shares more affordable for retail investors, allowing a wider range of individuals to invest in the company. This increased accessibility could potentially attract more buyers and increase demand, driving up the stock price. Second, a stock split can enhance liquidity in the market, as greater trading volumes generally lead to more efficient price discovery. Additionally, a lower share price resulting from a split might make the stock more attractive to institutional investors who have minimum price criteria for their investments.

However, there are also disadvantages to consider. One potential drawback is that a stock split does not fundamentally change the company's financials or market capitalization. It is purely a cosmetic change that merely divides the shares. Furthermore, a stock split may be perceived as a signal that the company's stock has become overvalued. This perception may cause some investors to sell their shares, leading to potential downward pressure on the stock price. Lastly, stock splits require administrative efforts from the company and can result in increased costs associated with organizing and communicating the split to shareholders.