On June 6th, Caixin reported that the hottest global stock, which has just set a new historical high, will start implementing a 1-to-10 stock split this week. It is worth noting that even after the split, NVIDIA's stock price will still be higher than $88/share four years ago. In the past four years, NVIDIA's market cap has soared from $220 billion to over $3 trillion, currently ranking among the largest companies in the world, alongside with Apple. A possible significant impact of the decrease in NVIDIA's stock price is that the possibility of being included in the price-weighted index may increase (especially the Dow Jones Industrial Average). Since experiencing a 1-to-20 stock split in June 2022, NVIDIA has been included in the Dow Jones Industrial Average earlier this year. According to past data, among the 240 stock split cases in the US stock market in recent years, the average increase of these stocks in the two weeks after the split is only 0.44%, and less than half of the cases outperformed. The average return rate of these stocks within six months is 6.6%, only slightly higher than the S&P 500 index's 5.4% during the same period.$NVIDIA (NVDA.US)$The hottest global stock, which has just set a new historical high, will start implementing a 1-to-10 stock split this week.

On Wednesday, June 6th, Nvidia, the leading artificial intelligence (AI) company, reached a major milestone. The closing stock price rose over 5% that day to $1224.4 per share, setting a new all-time high. The market cap also surpassed $3 trillion, surpassing Apple and ranking second in the US.

On Friday (June 7th), tomorrow, Nvidia's stock price will begin splitting in post-market trading and will start trading at adjusted prices next Monday (June 10th).

On May 22nd, in addition to announcing an explosive quarterly report, Nvidia announced that its stock will split at a rate of 1:10. After the split, the value of each Nvidia share will drop from the current $1,200 to about $120, and each shareholder's holding of Nvidia shares will become ten shares.

It is worth noting that even after the split, NVIDIA's stock price will still be higher than $88/share four years ago. In the past four years, NVIDIA's market cap has soared from $220 billion to over $3 trillion, currently ranking among the largest companies in the world, alongside with Apple.$Microsoft (MSFT.US)$, $Apple (AAPL.US)$A possible significant impact of the decrease in NVIDIA's stock price is that the possibility of being included in the price-weighted index may increase (especially the Dow Jones Industrial Average).

What impact will the stock split have?

Stock split involves increasing the number of outstanding shares by a certain proportion, while reducing the stock price proportionally, thereby reducing the price per share. So, is the stock split important?

Stock split does not affect the company's market cap or dilute its share value. The number of shares held by shareholders will increase, but their percentage of ownership in the company remains unchanged. Similarly, it does not affect the company's net asset value, net assets, and actual value.

Dave Sekera, Chief US Market Strategist of Morningstar, said that the only thing the split will change is the percentage of shares represented by each share.

Sekera noted that in the past, stock splits were important because decades ago, US stocks traded in units of 100 shares. For companies with very high share prices, investors needed more capital to trade, which reduced liquidity in the market.

Today, investors can buy any number of shares based on the amount of capital they are willing to invest, so splitting the stock can make the stock price more accessible and generally attract more retail investors.

Sekera said, "I think the impact on market sentiment is greater in the short term, and this does not come from any form of liquidity improvement or value change."

Sekera added that the stock split is only an icing on the cake for an already optimistic market sentiment and is another sign that management is confident in its business potential growth.

The possible significant impact of the decrease in NVIDIA's stock price is that the possibility of being included in the price-weighted index may increase (especially the Dow Jones Industrial Average).$Dow Jones Industrial Average (.DJI.US)$The possible significant impact of the decrease in NVIDIA's stock price is that the possibility of being included in the price-weighted index may increase (especially the Dow Jones Industrial Average).

The Dow Jones Industrial Average is one of the three most closely watched stock indices in the US, and its performance is related to the stock prices of its component stocks, not market capitalization. The DJIA usually excludes companies with higher stock prices, which has led to a 12-month increase of only 17%, behind the S&P 500's 25% and the Nasdaq's 27%.

$Amazon (AMZN.US)$After experiencing a 1-to-20 stock split in June 2022, NVIDIA has been included in the Dow Jones Industrial Average earlier this year.

If Nvidia is included in the Dow Jones Industrial Average, more exchange-traded funds (ETFs) and management funds tracking this index will flow into the stock. However, Morningstar's Sekera believes that the impact on the stock price may be limited because there are not many funds tracking the DJIA.

Where will Nvidia's stock go from here?

Rocky White, Senior Analyst at Schaeffer's Investment Research, listed past performance of US companies after stock split in a recent report and summarized it.

According to past data, among the 240 stock split cases in the US stock market in recent years, the average increase of these stocks in the two weeks after the split is only 0.44%, and less than half of the cases outperformed. The average return rate of these stocks within six months is 6.6%, only slightly higher than the S&P 500 index's 5.4% during the same period.$S&P 500 Index (.SPX.US)$According to past data, among the 240 stock split cases in the US stock market in recent years, the average increase of these stocks in the two weeks after the split is only 0.44%, and less than half of the cases outperformed. The average return rate of these stocks within six months is 6.6%, only slightly higher than the S&P 500 index's 5.4% during the same period.

Some of these large-cap stocks with market caps over $100 billion and pre-split prices over $400 have even more mediocre performances after the split, even performing poorly. According to statistics, the average loss of these stocks in the six months after the split is 2.66%, and only 37.5% of the cases have positive returns, while the average return of the S&P 500 index at the same period is 3.8%.

However, Rocky White believes that these data may or may not be applicable to Nvidia.

Because Nvidia's stock rose by 6.46% in the two weeks after the latest stock split in 2021, and it rose by nearly 40% in the six months after the split. Since the split, its stock price has accumulated a surprisingly high increase of over 500%.

As for Nvidia's future stock price, Wall Street is unanimously bullish. Based on Nvidia's excellent performance and unstoppable momentum, Bank of America analyst raised Nvidia's target price from $1320 to $1500, which means the stock will rise another 25%, the highest among Wall Street's target prices.

According to the latest statistics, after Nvidia's last quarterly report was released, at least 28 of the 58 brokerage firms that track Nvidia's stock raised their target prices, pushing the median target price to $1200.

In addition, among the 72 analysts who track Nvidia's stock in the media, 65 rate it as "buy" and no one rates it as "sell". Even analysts who are usually negative about Nvidia describe it as "an excellent company with extraordinary products".

Editor / jayden