Nvidia sparks talk of possible Dow inclusion after stock split

(Reuters) – Nvidia’s 10-for-1 stock split aimed at attracting retail investors has taken effect, sparking speculation about the chances of the artificial intelligence indicator’s inclusion in the blue-chip Dow index.

The split, which aims to reduce the value per share to make it more affordable for employees and investors, increases the company’s outstanding shares without changing the stock’s valuation.

“A side effect of Nvidia’s stock split will be to put it in the race to follow Amazon and Apple in the Dow, potentially crowding out other chip stocks from Intel, which is currently the lowest weighted,” said Ben Laidler, an equity strategist. global markets from the digital broker eToro.

Shares fell 0.5% in premarket trading on Monday, after rising nearly 27% since the company announced the stock split and a strong forecast last month. The dominant AI chipmaker also gained $3 trillion in market value and overtook Apple to become the world’s second most valuable company behind Microsoft.

Market analysts said stock splits tend to attract individual investors who trade in smaller lots and have less capital to invest than institutional investors.

However, Goldman Sachs strategists led by David Kostin said in a note that the most recent stock splits have not generated a significant increase in retail trading activity, but there have been some notable exceptions, such as the 2022 Amazon split and the Nvidia division in 2021.

Furthermore, “investors typically assign higher valuations to liquid stocks due to their low trading costs and flexibility in a variety of market environments,” the strategists said.

In recent years, trading volumes have increased briefly following stock split announcements but have evidenced little change during and after the splits take effect, according to Goldman’s analysis of 45 Russell 1000 stock splits since 2019.

Nvidia shares last traded at $120 per share after the split, compared with $1,200 on Friday, making it a potential contender for the 30-member price-weighted Dow index.

A spokeswoman for S&P Dow Jones Indices in late May said it does not comment or speculate on index additions or deletions.

(Reporting by Medha Singh in Bengaluru; Additional reporting by Pranav Kashyap; Editing by Devika Syamnath)