Nvidia announces 10-for-1 stock split. What does this mean?

In Nvidia's (NVDA) broad earnings beat reported on Wednesday, the chip giant announced a 10-for-1 stock split to be implemented for current shareholders on June 7. But what exactly is a stock split and what happens to company shares when one is approved?

Wealth! Host Brad Smith gives a thorough break down of what happens to corporate stock under a split and the incentive behind one.

For more of everything Nvidia, catch Yahoo Finance's exclusive interview with CEO Jensen Huang.

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

This post was written by Luke Carberry Mogan.

Video transcript

Let's get back to NVIDIA.

Ticker symbol NVD a big earnings report that the company just wowed Wall Street with massive beat in its core data centre.

Business revenue nearly tripling from a year ago.

But perhaps one of the biggest pieces of news out of the report a 10 for one stock split.

NVIDIA shareholders will get 10 shares for every one share of the company they currently own.

Now that goes into effect June 10th for people who own shares as of June 7th.

So let's back up just a little bit here, hold up.

Wait a minute.

Can we put some stock split knowledge in it?

And why did NVIDIA decide to do one?

Well, a stock split happens when a company divides up each share of its stock into a set amount of shares.

So, for example, here if you own one share of brad dot a I ticker Simple BR AD worth $300 and then the company, run by Mo announces a 3 to 1 stock split that would leave you with three shares worth $100 a pop each.

The market cap of Brad's company remains unchanged since the value of each investor's holdings.

That remains the same.

The big difference to the investor you now own three shares instead of just one.

The company sets the day on which the split will happen, and at the close of the trading day, all investors holding the stock will have their shares converted.

And then the stock starts trading again on this new split adjusted basis.

Same ticker, though the next question is, why would a company do this?

Why did NVIDIA do this?

Even while doing a stock split increases the number of outstanding shares or shares owned and thus increases the liquidity of the stock, making it easier for buyers and sellers to trade?

Lowering the share price also makes it a little bit more accessible to investors from our earlier example.

Brad dot a I shares were originally $300 but went through a three for one stock split, making each share worth $100.

If you have today $100 max to spend on stock, you can now afford one share of brad dot a. I you wouldn't have had enough money to buy the stock when it was at 300 bucks a share unless you're getting into fact trading and we won't go down that route.

But anyway, overall stock splits make ownership more accessible to a wider array of people, and NVIDIA cited that exact reason for the split, saying it would make stock ownership more accessible to employees and investors.