Nvidia’s 10-for-1 Split
Today is officially Nvidia’s first day trading after its 10-for-1 stock split.
That means the price of Friday’s close has now been revised from $1,208.88 to $120.88.
Now keep in mind that a stock split doesn’t change the underlying value of the stock.
The market cap stays the same, there are just a lot more shares out there. If you owned a single share of Nvidia for ~$1,200 last week, you would own 10 shares this week each worth ~$120.
It doesn’t change the underlying market cap or value of the company in total.
What it does do; however, is lower the barrier to entry for potential investors. Most people feel more comfortable being able to buy a few shares of a $100 stock than spending a thousand dollars on a single share… even when the financials and upside are exactly the same.
It’s basically a mental hurdle that people have trouble getting over… Which is precisely why Nvidia did this split!
They know that more everyday investors will pile into a stock that has a lower share price than one that has an expensive share price.
In reality, the share price isn’t a barrier to entry — it hasn’t been since the invention of fractional shares which just about any broker will allow you to buy.
This means even if you had a $500 account, you could have bought some Nvidia before the stock split… It just doesn’t feel as good owning half a share compared to 5 shares, right?
Now the real impact is on the options. And most people don’t even realize it…
You see, before the split, retail traders were mostly locked out of Nvidia options because ONE contract would run $5-$10k…
I don’t know about you, but I usually avoid options of that price that could go to $0… And most folks with smaller accounts definitely do. And you can’t buy fractional options (at least nowhere I am aware of!)
So what the stock split really does is open the entire world of options up to retail investors.
And if you doubt that’s the case, I am writing this just a few hours after the market opened and there’s already been a stunning 3 million contracts traded today on NVDA!
That’s the trend to watch for…
But what does it mean for the underlying stock?
Let’s look at Apple
That’s a company who has split more times than the majority of stocks on the market. But each time they do, they eventually make a new high.
Remember how I said a lower price lowers that barrier to entry since more people — everyday investors — will pile into a stock that has a lower share price than one that has an “expensive” share price?
We have seen this exact scenario happen with Apple over and over again across its 5 stock splits.
The barrier to entry gets lowered, and Apple’s stock soars.
Let’s take a look:
This is a chart showing Apple’s stock price going back to the year 2000. And each blue S balloon indicates a point in which Apple’s stock split.
- After Apple’s split in 2005, the stock climbed 52% over the next year.
- After Apple’s split in 2014, the stock soared 35% over the next year.
- And after Apple’s split in 2020, the stock jumped 17% over the next year.
What’s my point?
A stock split, especially with a unicorn like Nvidia, opens up the stock to a whole new pool of investors and these new investors can send share prices higher.
Nvidia is a stock who wasn’t on anyone’s radar just a few years ago. Today it’s one of the most valuable companies in the world. And it’s growing a fanbase like Apple and Tesla’s loyal base of perma-bull investors.
People are looking for a reason to be bullish on Nvidia, they’re looking for a reason to invest, and I think this stock split just gave them the perfect excuse to pile in.
That’s why I am just as bullish on Nvidia now as I was when I first bought earlier this year.
We might see a little shake out here and there (Apple has had some too), but I think the net activity on NVDA is going to be bullish in the years to come.
— Nate
P.S. Did you catch Graham’s strategy for trading the “new” Nvidia? He is showing folks how to target the most explosive opportunities on NVDA – watch it here!
