When a company goes public, it’s just the beginning of a long road to keep investors engaged and shares liquid. One of the most common ways to do that is through a stock split.
A split happens when a company adjusts the number of its outstanding shares without affecting its overall market value. It typically occurs after a stock has risen significantly, and the company believes it might look expensive to investors. A split can make shares feel more affordable while signalling confidence from leadership.
But while stock splits can generate positive investor buzz, it’s very important to know that they don’t change a company’s fundamentals. They simply repackage ownership into smaller (or fewer) pieces.
Recent examples of stock splits that made headlines include Nvidia Corp (NASDAQ: NVDA), which executed a 10-for-1 split in 2024 as its stock approached $949, lowering the price to around $95 per share. Alphabet (NASDAQ: GOOG) completed a 20-for-1 split in 2022 when the stock was over $2,750 and dropped to $135 post-split. Tesla Inc (NASDAQ: TSLA) executed a 3-for-1 split in 2022 from $891 a share to $297.
In this guide, we’ll break down how stock splits work and what they mean for you as an investor.
How Does It Work?
Forward stock splits, the most common type, increase share count while lowering share price. Although your total investment value stays the same, your number of shares and the price per share change. The result is often a more accessible stock that appeals to a broader range of investors.
To understand how this works, consider a simple example.
Let’s assume you have $2,000 to invest. Company A trades at $20 per share, while Company B trades at $500. You can buy 100 shares of Company A, or just 4 shares of Company B. Even with identical fundamentals, owning more shares often feels better to investors.
If Company B were to announce a 10-for-1 forward split, however, its $500 stock would become 10 $50 shares. Your $2,000 investment value wouldn’t change, but you could now buy 40 shares instead of 4.
Forward split ratios are typically 2-for-1 or 3-for-1 but can be more aggressive, as seen with Nvidia’s 10-for-1.
Forward vs. Reverse Stock Splits
Unless stated otherwise, the term “stock split” generally refers to a forward split, which is used to reduce share price and expand investor access.
A reverse stock split, on the other hand, raises the share price by consolidating existing shares. Companies often use them to meet exchange listing requirements or reposition themselves in the market. As with a forward split, the total market cap stays the same, but a reverse split can signal financial distress and rattle investor confidence.
Consider Company C, which has 10 million shares trading at $0.35. To avoid being delisted from the New York Stock Exchange (NYSE), which requires a $1 minimum price, it enacts a 1-for-10 reverse split. Now it has 1 million shares trading at $3.50 each.
As a real-world example, AMC Entertainment Holdings Inc (NYSE: AMC) executed a 1-for-10 reverse split in 2023 to preserve its NYSE listing. Shareholders received one new share for every 10 they owned. Since then, AMC’s stock has declined approximately 75% (as of mid-2025).
Benefits of Forward Splits
Forward splits benefit companies and investors by increasing accessibility, trading volume, and sometimes stock performance. The perceived affordability of a lower-priced stock can drive demand and widen the investor base.
They also signal confidence. Management typically initiates forward splits after strong price performance, reinforcing bullish sentiment and improving market visibility.
With more investors participating, ownership becomes more diversified, reducing the influence of large stakeholders and improving long-term share stability.
Drawbacks of Stock Splits
While splits change the number of shares and their price, they don’t affect company fundamentals or valuation. And not all splits are viewed positively, especially reverse splits.
Splits (especially forward ones), can also increase volatility due to surges in trading volume. Short-term price movements may follow, which can distract from long-term fundamentals.
There are also operational costs including legal fees, filings, and communications with shareholders. For smaller companies, these costs may outweigh the benefits, especially if increased trading volume or investor interest doesn’t materialize.
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Frequently Asked Questions
Is a stock split good for a stock?
A stock split can improve liquidity and attract investors but doesn’t change a company’s intrinsic value. The impact depends on timing and market perception.
Should I buy or sell after a stock split?
It depends on your goals. A split might improve accessibility, but it doesn’t affect a company’s fundamentals. Evaluate based on your investment strategy.
Do stocks usually go up after a split?
Sometimes. Increased interest and liquidity can lead to short-term gains, but there’s no guarantee of long-term price increases purely from a split.
What are the tax implications of a stock split for an investor?
Stock splits are not taxable events. Your cost basis is adjusted proportionately across the new share count, but no income is recognized.
