Please ensure Javascript is enabled for purposes of website accessibility

It's Not Too Late to Take Advantage of NVIDIA's Stock Split. Here's Why

By Danny Vena - Updated Jun 25, 2021 at 11:52AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There's an unusual component to this stock split investors need to understand.

Most stock splits are pretty straightforward affairs. A company announces a stock split and advises investors of how many additional shares they will receive, the record date of the transaction, and when the new shares will be distributed.

In many ways, the upcoming stock split for NVIDIA (NVDA 1.73%) is no different. In conjunction with its fiscal 2022 first-quarter earnings report (ended May 2, 2021), the chipmaker announced that its board of directors declared a four-for-one stock split, payable in the form of a stock dividend. This move was conditional on NVIDIA stockholders voting to approve to increase the number of authorized shares from 2 billion to 4 billion.

Due to a quirk in this particular case (more on that in a minute), while it appears investors have already missed the opportunity to take advantage of the NVIDIA stock split, that simply isn't the case.

Relaxed person meditating at a desk in front of a laptop.

Image source: Getty Images.

The devil's in the details

At the company's 2021 annual meeting of stockholders, which was held on June 3, shareholders approved the measure to increase the number of outstanding shares, setting the stage for the stock split to move forward. Each shareholder of record as of June 21 will receive three additional shares of NVIDIA stock for each one they own, which will be distributed after the market close on July 19. The stock will start trading on a split-adjusted basis when the market opens on Tuesday, July 20. 

To give some context to the numbers, here's an example of how it will work, though the final numbers will vary based on the then-current stock price. For each share of NVIDIA stock that an investor holds -- currently worth roughly $760 -- post-split, shareholders would own a total of four shares priced at $190 each.

The odd quirk

What sets NVIDIA's stock split apart from many others is the extraordinary length of time between the record date and the distribution date of the new, split shares. The record date is the date by which investors must own the stock in order to be eligible to receive additional shares created by the stock split, which occurs on the effective date. Typically, there are just a few days between the two.

For example, in the recent 10-for-one stock split initiated by The Trade Desk (TTD 1.24%), shareholders of record as of June 9, 2021 received nine additional shares of stock, which were distributed after the close of trading on June 16, 2021 -- or a period of about a week after the record date. This was very similar to a couple of high-profile stock splits that happened late last year. Apple (AAPL 0.63%) and Tesla (TSLA 3.10%) each split their shares in August, with record dates of Aug. 24 and Aug. 21, respectively, and both stocks began trading split-adjusted on Aug. 31.

In the case of NVIDIA, however, the period between the two is a whopping four weeks long. So what happens to investors who buy between the record date and the effective date? Are they left holding the bag?

Furious people reading a letter while sitting on a couch.

Image source: Getty Images.

The good news

What's missing from NVIDIA's press release is the ex-dividend date. Because the stock split is being initiated in the form of a stock dividend, the ex-dividend date governs which investors are eligible to receive the newly split shares. In this case, NVIDIA's stock split goes ex-dividend on July 19, according to a spokesperson for brokerage house Charles Schwab

This means that investors can buy NVIDIA shares right up to July 19, and still be eligible to receive the additional shares from the stock split once the shares begin trading on a split-adjusted basis when the market opens July 20.

It's also important to point out that this stock split doesn't do anything to change the underlying value of NVIDIA as a company -- it merely cleaves it into a greater number of ownership segments. There are plenty of reasons to be bullish and invest in NVIDIA, but investors shouldn't buy the stock based solely on the upcoming stock split.  

Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Danny Vena owns shares of Apple, NVIDIA, Tesla, and The Trade Desk. The Motley Fool owns shares of and recommends Apple, NVIDIA, Tesla, and The Trade Desk. The Motley Fool recommends Charles Schwab and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

NVIDIA Corporation Stock Quote
NVIDIA Corporation
$190.32 (1.73%) $3.23
Apple Inc. Stock Quote
Apple Inc.
$173.19 (0.63%) $1.09
Tesla, Inc. Stock Quote
Tesla, Inc.
$927.96 (3.10%) $27.87
The Charles Schwab Corporation Stock Quote
The Charles Schwab Corporation
$75.86 (1.15%) $0.86
The Trade Desk Stock Quote
The Trade Desk
$75.41 (1.24%) $0.92

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/15/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.