Podcast Episode - Suze School: Understanding the NVIDIA Stock Split

This Suze School features a lesson on how stock splits work and an explanation about the NVIDIA stock that everybody is talking about.  Get out your Suze Notebooks, because you’ll have your own quizzy about what you learned, in a future episode!

Listen to Podcast Episode:

Podcast Transcript:

Suze: June 23rd, 2024. Good morning, Miss Travis.

KT: Today is the day, Suze. It's the day — it's the day that you have been waiting for and everyone that took the quizzy on the Alliant website has been waiting for, and guess what, Suze?

Suze: What, KT?

KT: You have a winner.

Suze: But don't announce it yet.

KT: No, you're going to announce that.

Suze: Not yet, because welcome everybody to the Women and Money podcast as well as everybody smart enough to listen. This is Suze School today and we are, I promise you, going to talk about stock splits and we're gonna talk about NVIDIA and I'm gonna give all of you a quizzy that you're gonna have to answer for yourself. And on Thursday, July 4th, I'm gonna ask KT that quizzy to see if — oh, she's already making a face. She's rubbing — she does this thing, everybody, where she puts her little head down, her right arm goes up, her hand goes in her hair, and she's just staring down like, really?

So your quizzy on Thursday, July 4th, is going to be the quizzy that I'm going to give everybody today, and I'm gonna listen to today's podcast and you. That's right. You should.

KT: Ok, let's tell everybody about the winner. I'm so excited. All right.

Suze: So you now know what's happening today, but right now what's important really is the moment that many of you have been waiting for. So the winner for the $5000 sweepstakes that somebody was going to win simply because they entered an email and nothing else — I hope all of you were smart enough to do that — the winner of that sweepstakes... drum roll, Robert is — announce it, KT! (Sound of drum roll in background).

KT: Lisa Hagen. Lisa is from New Hampshire everyone. Lisa, we are so excited that you became the proud winner of $5000 from Alliant and we want to know what you're gonna do with it.

Suze: Let us know, Lisa. But hopefully this news makes you one happy woman. All right. Wouldn't you want to win 5000?

KT: Every day, every day, every, every day, Suze.

Suze: All right. Now, while I go on to do Suze School...

KT: Wait, I have a question. So Suze, let's say Lisa gets this $5000 and she decides to put it back into an Alliant one-year CD. How much interest will she earn on that?

Suze: 5.15%, KT. That's really a great interest rate because I don't know if a lot of you are noticing, but interest rates are starting to go down little by little — even the long-term treasury. So one year, 12 months to 17 months, by the way everybody, because remember at Alliant, you can choose your maturity all the way up to 18 months, 5.15% on $5000 for that period of time. If you want that money to stay safe and sound, it’s a great way to go. All right. What are you gonna go do now, KT? Because you are not staying in here.

KT: I want to learn about the split.

Suze: I know, but this actually isn't a complicated one. But because you know, since I do it from the top of my head, there's numbers and things that can get confusing.

KT: But it's good for people that are already in the market and those that want to come in for the first time, right?

Suze: No, this is about stock splits and NVIDIA. Wrong. Ok. There you go. All right. Go. Have a great day.

KT: I'm gonna go swim. I love you. Love you all listening. Lisa, congrats again. Bye-bye-bye-bye.

Suze: All right. So now that we know who won the $5000 — and I'm so sorry that it wasn't you if it wasn't you — but anyway, now it is time for Suze School. So get out your notebooks and let's learn about something that you have wanted to learn about. But more than you wanting to learn about it, I wanted to make sure that you understood it. And this Suze School came from an email question that we got, maybe it was two weeks ago. I'm not exactly sure, about how somebody wrote in and they said, oh, they were so excited, they had NVIDIA stock, it just split and now they have an extra $37,000 and they wanted to know what to do with it. And that's when I said stop KT, it is obvious that we need to do a Suze School on this topic. And that is exactly what we are going to do today.

So not only am I going to talk to you about stock splits, but I've decided I needed to talk to you about NVIDIA stock itself because while it's true that every one of you now, without a shadow of a doubt, knows that name — NVIDIA, NVIDIA, NVIDIA — do you even know what they do? Do you even know the category of stocks that they happen to belong to? Do you know why they are so really invaluable? They are — you can't even value them — and why everybody wants them. What do they offer that, at this particular time, everybody feels that nobody else offers, and should you be investing in it or not? So this might get to be a little bit complicated but absolutely not complicated for those of you who are smart enough to listen to the Women and Money podcast, which in my opinion is every single one of you.

Let's start with what is a stock split. A stock split is very simple. It's where a company that has a stock — you might own a few shares of that stock — will take NVIDIA as an example, and that stock has gone up so much in value that the company feels like, you know, people won't continue to buy it because it's too expensive. In June, just a little bit ago, when NVIDIA was at $1200 a share, the company obviously felt that it was too expensive for the majority of you to buy, even though you could have bought slices, just a fraction of it. Most people like to at least own one share, and one share of NVIDIA back then was $1200 per share. Many of you didn’t have the money or don’t have the money to buy one full share.

So what happens then is that a company like NVIDIA decides to split the price of the stock and adjust how many shares of stock you own accordingly. So in NVIDIA's case, they had what was known as a 10-to-1 stock split, which simply meant that the $1200 share price would be divided by 10, or $120. So they reduced the price of the stock by ten times, but they would increase the number of shares you owned by that as well.

If you happen to own, let's just say 100 shares of NVIDIA, you now would own 1000 shares of NVIDIA. If you owned one share of NVIDIA, you now would own 10 shares of NVIDIA. So let's just say you owned a fraction of NVIDIA — you never even had enough money to buy one share. All you had was, let's just say, 0.8 shares of NVIDIA — after NVIDIA split, you would own eight shares of NVIDIA.

Now, the woman who obviously thought that she was up $37,000 is that she wasn't looking at the actual price adjustment of the stock. She was just looking at now how many shares of that stock most likely she owned. So if she saw a split where she owned 100 shares of NVIDIA, and now she sees that she’s owning 1000 shares of NVIDIA and she still thinks that it's at $1200 per share, you would see why she thought that she hit the jackpot. But the truth of the matter is all you need to know about any stock split is that you really don't make any money. You don't lose any money. You end up with more shares, but by a reduced value.

Now, there are all different kinds of stock splits. In this case, NVIDIA split 10-to-1. So again, every share that you have, you are going to end up with 10 shares, but NVIDIA is going to reduce its price 10 times. So again, in this case, $1200 down to $120. But the truth of the matter is, it's not always a 10-to-1 stock split. Sometimes it's a 2-to-1, a 3-to-1, a 4-to-1 or whatever the company deems will help them and their stock price and people purchasing it over the long run.

In fact, you may not even know this, but this was not the first stock split for NVIDIA, everybody. You know, NVIDIA has been around for a long time and this is actually the sixth time that they split their stock. The first time was in June, I believe of 2000 — it was a 2-for-1 stock split. Then September 12th 2001, a 2-for-1 stock split. September 2007, a 3-for-2 stock split — write that down because I want you to know how you would even decipher what that means. In July of 2021, not that long ago, they had a 4-for-1 stock split, and June 10th of this year they had a 10-for-1 stock split.

If you really want to get sick to your stomach, let me just tell you what that would mean. For every share of NVIDIA that you owned back then, you would have 480 shares today as of this 2024 stock split. I just want you to think about that. So if you owned 100 shares back then, guess what — you would have 48,000 shares of NVIDIA today. If you owned 1000 shares back then you would have 480,000 shares of NVIDIA today. And if you had 10,000 shares back then, you would have 4,800,000 shares of NVIDIA today — which is why when you have a good stock and you understand what the stock does and what the future may bring, that's when you hold on to a stock. Because a lot of you, I’m sure, way back then as NVIDIA was going up or they were stock splitting or whatever, you didn't have a clue 24 years ago what was going to happen with artificial intelligence and things like that. But if you just had held it, can you even begin to imagine how rich you would be? Truth of the matter is, back in the year 2000, I didn’t have a clue. I never had heard of NVIDIA. Just saying. So I wouldn’t feel too bad about it.

Let's go back for a second to the 3-for-2 stock split. Here is your quizzy right now. If you owned just one share of NVIDIA, what would it mean — a 3-for-2 stock split in September of 2007? I need you to write this down. The price of NVIDIA stock was right around $50.91, and they announced a 3-for-2 stock split. I am not going to tell you the answer and how to do that right now. I want you to be able to answer the question: if you had 100 shares of NVIDIA at $50.91 before the September 11th 2007 3-for-2 stock split, how many shares would you have had after the stock split? And what would the price of NVIDIA be? That is your quizzy. And on Thursday, July 4th, that will be KT's quizzy.

Now, you know she's not gonna have the answer to that question. She's gonna just look at me like I've lost it, and then she's gonna start to giggle in that sweet little giggle of hers, and then she's gonna say something. I'm gonna say, no, no, unless maybe she surprises me. But anyway, that’s when I will tell you exactly the answer to that question. So again, a 3-for-2 stock split — what does that mean? But I'll just give you a little hint. All right, a 3-for-2 stock split means that for every 2 shares that you own, you are going to get an additional 1 share. Just that simple. That is the information that you need to work with. So this is one type of stock split. There are really two different types of stock splits, but for now, you just need to understand that the usual stock split is like 2-for-1, 3-for-1, 4-for-1 or 10-for-1.

All right. Now, the next question has to be: why does a company really split its stock, and what is the advantage to you as an investor? So obviously, as an investor, it's easier for you to buy because a stock split like this reduces the price of the share. So it makes it more affordable for you. If you're somebody who doesn’t like to buy slices of a stock, maybe this enables you to buy one full share of a stock. In NVIDIA's case, it went from 1200 to 120. So maybe you had $120 that you could buy one share or maybe even four shares.

So it increases your affordability to buy more shares, especially if you want to buy full shares. What does it do for the company? It actually improves, believe it or not, their liquidity. Because when they do this, they're actually increasing the number of shares — they’re called outstanding shares — that the company has. So now they have far more shares than they had on the market, which does what? It improves the liquidity and boosts the trading volume and makes it easier to buy and sell stock, which gives them more activity in their stock and probably, they hope, an increase in their stock per share also. It just seems that when a stock goes down like that — it goes from 1200 to 120 — people don’t really understand what happened. Some people look at this as, oh, at $120 a share, now there’s more room for appreciation because at $1200 a share, how high can it really go? (A lot higher, by the way.) But people don’t think that way.

You normally think when you see something at 1200 or 1800 or whatever, or even at 600,000 like some of Warren Buffett’s Berkshire Hathaway or whatever it's trading at now, you just look at it and you think, I can't do that. I'm out of there. I can’t afford it. So a lot of times when you just look at that and you see $120 stock, you kind of think that, oh, it’s undervalued, it has more room to grow. So what do you do? You buy it. Also remember, in investing in the stock market, there’s not only a financial aspect to it but a psychological aspect — an emotional one. A lot of times when you see a stock having run to $1200 like NVIDIA, you just psychologically think, oh, you can’t afford that. When it splits and now it’s at $120 a share, you think, oh, I can afford that, it’s affordable. So what does that do? It attracts more investors. More investors buying NVIDIA can potentially drive up the price of that stock over time, which recently, if you look at the price of NVIDIA, it immediately went from 120 to 125, 130 in there. Did you see that? So obviously people thought psychologically, oh, I can now get in on this stock that everybody’s talking about at a lot lower price.

Also, people who like to own full shares — they don’t believe in these slices, that’s not how they invest — it allows them to increase the diversification of their portfolio. So when a stock goes down like NVIDIA does simply because of the split price, then a lot of people buy that stock because they want diversification in their portfolio. So now maybe they can buy 100 shares or 10 shares of it. Diversify their portfolio where really they didn’t feel that they could do that before the split. Those are just some of the reasons that a split stock price can really help the price of the stock. Doesn’t always work that way, but it can. But you need to know that a stock split does not change the company’s market capitalization or the overall value of the company, and it does not increase the value of what you own when it splits — it’s equal across the board. Now, I hope that explained it to you.

Here’s the next question, everybody. Can you just tell me what NVIDIA does? Can you tell me what group of stocks it belongs to? Is it a software company, a semiconductor company? You know there are different categories of stocks — stocks that are staple stocks, discretionary stocks, health stocks, energy stocks, all different kinds of categories that stocks fall into. So do you even know the category that NVIDIA falls into? Do you or do you not? Because if you end up just buying a stock, really, because somebody else said to buy it or whatever, because it’s always in the news and you don’t even know the category of that stock or what they do, then you’re really just an investor, in my opinion, that’s following what other people are telling you to do. Even if your financial advisor suggested that you buy NVIDIA — and that advisor were me — I would tell you exactly what that stock does, why I like it, and why you should buy it if I was seeing you one on one.

So let’s go back to NVIDIA right now. The answer to that question is: NVIDIA falls into a category known as a semiconductor. And I’ll tell you why I want you to know that in a second, all right. Why do they fall in that category? Because their core business really revolves around designing and manufacturing semiconductor chips. Just that simple. And it is those chips that go into AI, automation, gaming, all of it. It is those chips that make NVIDIA a semiconductor company. Now, the two things that NVIDIA is truly known for are something called a graphic processing unit, referred to as GPUs — write this down — as well as what’s called a system-on-chips, an SOC product. They’re known for other things truthfully, but it’s right there, those two things especially, that make NVIDIA so special.

Because a significant portion of NVIDIA’s value, everybody, lies in its semiconductor intellectual property rights. It lies in its ability to develop these cutting-edge semiconductor chips. So that is why it is grouped in the semiconductor industry. Just that simple. Now, what’s interesting is — did you hear me say it’s intellectual property? The chips, the GPUs that NVIDIA is producing, their intellectual property of what’s in those chips, how they do those chips, is invaluable. Remember, the smaller the chips become and the more powerful the chips are, the more information can be held in all of these computers and the things that are being developed now. These semiconductor chips that NVIDIA makes obviously are invaluable to many different types of companies, but its real value now, at least in my opinion, seems to be in artificial intelligence — because artificial intelligence is truthfully, everybody, in its beginning stage. It has so much further to grow and develop, it’s not even funny, which makes NVIDIA and companies like NVIDIA so important.

But right now NVIDIA is leading the pack tenfold. But that doesn’t mean that there are not additional semiconductor stocks that are worth you looking at, number one, or is there an ETF that you could buy in the semiconductor arena to participate in NVIDIA and the other companies? Because you never know what can happen in life and with a stock. So do you think it is wise for you to put all of your money that you want to put in this area in one stock — NVIDIA — or do you think that maybe for you a better decision would be to give you diversification, to put your money in an exchange-traded fund where NVIDIA maybe is their number one holding? You have to decide that for yourself.

Now, it’s no secret. I own NVIDIA. I’ve owned NVIDIA for a long time, but I own other semiconductor stocks as well. I have diversification in that arena where I’ve also made great money on those other semiconductor stocks. But if I was a relatively new investor or I didn’t have a large portfolio, so I didn’t have a lot of diversification among a specific area, I would actually do an ETF before I just put it all into one stock, even if that stock is projected to continue to go up and up and up.

My favorite ETF in the semiconductor area is the VanEck Semiconductor ETF. Right now, it’s trading for about $266 a share. Its symbol is S like in Suze, M like in money, H like in honey — because I was thinking about KT that second. But SMH is its symbol. An ETF such as SMH comes with high risk. It just does. It can go up a lot, but also it can go down a lot, and nothing — including NVIDIA or any of these stocks — will go straight up. They just won’t, because there always comes a time when somebody says, you know what, I’ve made so much money on this stock, I am now selling, and then another person thinks that, and before you know it, it goes down.

You are not to put all of your money at this point in time in any of these stocks or ETFs. You are to dollar cost average into it. Just that simple. Just a few days ago, I put some of Colo’s money into certain stocks, but just a very small portion of it — of what I want invested for him — so little by little. So don’t go put everything you have right now into just NVIDIA or, if you decide to go the ETF route, into SMH. But bottom line, this Suze School was so you now should understand stock splits, how they work, and now at least you know a little bit about the stock NVIDIA that everybody is talking about.

All right. So until Thursday, there’s only one thing that I want you to remember when it comes to your money, and it is this: people first, then money, then things. Now you stay safe, and if you do that, you will also stay unstoppable.