Q: I have shares in Nvidia and the company has announced a share split, can you explain what that means for shareholders?

If you own shares in Nvidia, prepare for a shock if you look up the share price first thing on Monday morning: it will be 90% less than the closing share price on Friday.

But it’s nothing to worry about. Nvidia is merely carrying out a ‘stock split’ in an attempt to make the shares more accessible for private savers. Here we answer investors’ questions.

What is a share split?

A share split is a change in the way that an investor’s stake in a company is represented by the shares he or she owns.

Imagine that you own half of a bed and breakfast business and that currently you own one of the two shares in issue. You and your co-owner decide that in future you will each own five of a total of 10 shares in issue. Clearly nothing changes in terms of what you actually own: half of the bed and breakfast business. But you own five shares instead of one. This can be described as a ‘five-for-one share split’.

Listed companies can do exactly the same thing. After the close of business on Friday each existing Nvidia share will become 10 shares. As with the B&B business, the proportion of Nvidia owned by each shareholder will not change. The share price will fall by 90% when the market opens on Monday but, as each investor will have 10 times as many shares, the value of each investor’s holding will not change.

It’s common for companies to split their shares to prevent the price rising to the point that they are out of reach of ordinary investors. It’s particularly likely to happen among fast-growing and successful technology companies, whose share price can sometimes appreciate dramatically. It’s for this reason that it’s rare to see shares priced at hundreds or thousands of dollars, pounds or euros.

It’s not unknown, however: Warren Buffett has consistently refused to split the shares in his company, Berkshire Hathaway, whose ‘A’ shares change hands for $631,000 each at the time of writing; there are however also ‘B’ shares available for a more reasonable $415.

Why is Nvidia doing this?

At the moment, shares in Nvidia change hands for $1,138 each. This puts them out of reach for savers who have a small amount of cash available or who want to take only a smallish punt on the chip company. This can happen when, for example, an investor has put sizeable sums into their account and has invested everything but then receives a dividend from one of their holdings that they need to find a home for.

Nvidia’s share split will bring the price of one share down from the current $1,138 to $113.80, if we disregard the normal day-to-day fluctuations in share price that all companies experience. That will make them much more affordable.

The company itself said: ‘Given the significant appreciation of the company’s share price in recent years, the stock split is intended to make stock ownership more accessible to employees and investors.’

Do I need to do anything to get the extra nine shares for each existing share?

No, your holding will be adjusted automatically.

Are there any tax implications for me?

If you hold the shares in an ISA there are no tax implications and there’s no need to do anything. Things could be more complex if you own them via an investment account, however (currently Nvidia shares cannot be held in a Fidelity SIPP).

In Nvidia’s Q&A on the share split, the company says: ‘If you pay taxes in a country other than the US, you’re strongly encouraged to confirm with your tax adviser any tax implications of the split. It is possible that the distribution of the additional shares as a result of the split could be viewed as a taxable event in some countries.’

Fidelity’s tax expert, Mark State, backed this advice. He said: ‘UK shareholders in Nvidia may wish to check with their tax adviser if they have any concerns. Our understanding is in most cases there won’t be.’

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