Nvidia 10-for-1 Stock Split: Potential Impact on Dow Inclusion

Nvidia’s recent 10-for-1 stock split, aimed at making its shares more affordable to retail investors and employees, has sparked speculation about the company’s potential inclusion in the blue-chip Dow Jones Industrial Average (DJIA) index.

This strategic move increases Nvidia’s outstanding shares without altering the overall valuation, making it a strong contender for the DJIA.

Purpose and Effects of the Stock Split:

The primary objective of Nvidia’s stock split is to lower the per-share price, making it more available to a broader range of investors, particularly retail investors who often trade in smaller lots.

This move aligns Nvidia with other tech giants like Amazon and Apple, which have previously undertaken similar stock splits.

“A side-effect of Nvidia’s stock split will be to put it in the running to follow Amazon and Apple into the Dow, potentially pushing out fellow chip stock Intel that currently has the lowest weighting,” said Ben Laidler, global markets strategist at digital brokerage eToro.

Market Reaction and Speculation:

Following the stock split announcement and a robust forecast last month, Nvidia’s stock has risen nearly 27%. However, the stock saw a slight dip of 0.5% in premarket trading on Monday after the split took effect.

Despite this minor decline, Nvidia’s market value remains substantial. It has reached $3 trillion and surpasses Apple to become the second-most valuable company globally, trailing only Microsoft.

Impact on Retail Investors:

Historically, stock splits tend to attract individual investors with less capital, making stocks more accessible to a wider audience.

Goldman Sachs strategists, led by David Kostin, noted that while most recent stock splits have not significantly boosted retail trading activity, there have been notable exceptions, such as Amazon’s 2022 split and Nvidia’s 2021 split.

“Investors typically assign higher valuations to liquid stocks because of their low trading costs and flexibility in various market environments,” the strategists said.

Historical Trends and Trading Volumes:

Goldman’s analysis of 45 Russell 1000 stock splits since 2019 indicates that trading volumes generally increase briefly following split announcements but show little sustained change during and after the splits take effect. This pattern suggests that long-term trading volumes remain relatively stable while initial interest spikes.