Put simply, a stock split is a tool publicly traded companies can lean on to adjust their share price and outstanding share count by the same factor. The beauty of stock splits is they're entirely cosmetic and have no effect on a company's market cap or underlying operating performance.
There are two types of stock splits -- forward and reverse -- with the former being far more popular than the latter among the investing community.
Reverse splits are enacted to increase a company's share price, often with the goal of maintaining continued listing standards for a major stock exchange. Since most reverse-stock splits are conducted from a position of operating weakness, investors tend to keep their distance from this variety of split.
Meanwhile, forward-stock splits are designed to reduce a company's share price to make it more nominally affordable for retail investors who lack access to fractional-share purchases through their broker. Companies with high-flying stocks that require a forward split to make their shares more "nominally affordable" are usually out-executing and out-innovating their competition.
Since the curtain opened on 2024, 13 phenomenal businesses have announced or completed stock splits -- none of which have been more anticipated than that of AI juggernaut Nvidia (NASDAQ: NVDA). Given that companies conducting forward splits have, since 1980, more than doubled the return of the benchmark S&P 500 in the 12 months following their split announcement, investors are eager to guess which top-tier stock will be next to unveil a forward-stock split.
Nvidia had all the hallmarks of a Wall Street stock-split stock
Prior to Nvidia announcing its largest-ever forward split (10-for-1) on May 22, there were more than enough clues to suggest that a stock split was imminent.
The obvious clue with Nvidia was that its stock had increased by 550% between the start of 2023 and the day it released its fiscal first-quarter operating results, where it revealed its historic split. No one on Wall Street has ever witnessed a market-leading company add around $2.8 trillion in market cap in what feels like the blink of an eye.
To build on this point, Nvidia's jaw-dropping returns have made it particularly popular with everyday investors. It's become the fourth most-held security (including exchange-traded funds) on retail investor-dominated online trading platform Robinhood. Not requiring retail investors to save $1,300 to purchase a single share of Nvidia might help sustain the euphoria behind its near-parabolic climb.