Tesla's Valuation Shoots Up By $84 Billion In A Single Day After Stock Split Signal. Here's What It Means

Elon Musk¡¯s Tesla added about $84 billion to its stock-market value on Monday, which is more than Ford Motor¡¯s entire market capitalization, as per a report in Bloomberg. The spike in Tesla¡¯s valuation came after the EV maker said it is planning a second stock split.

The news about the stock split was signalled via a tweet by Tesla. The last time Tesla stock got split was in August 2020. Its share price rose a staggering 743% that year, and the split was often cited among the reasons that drove the gains.

Tesla will ask shareholders to vote at this year¡¯s annual meeting to authorize additional shares in order to enable a stock split.

¡ª Tesla (@Tesla) March 28, 2022

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Elon Musk's Tesla was by far the most-purchased stock among Fidelity customers on Monday, according to data from the brokerage firm.

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What Is Stock Split?

For the uninitiated, a stock split happens when a company increases the number of its shares to boost the stock's liquidity. The company usually carries out the stock split by issuing additional shares to shareholders.

Although the number of shares outstanding increases by a specific multiple, the total value of all shares outstanding remains the same, because a split does not fundamentally change the company's value. Companies often choose to split their stock to lower their trading price to a more comfortable range for most investors, and to increase the liquidity of trading in their shares.

Simply put, most investors might be more comfortable purchasing, say, 100 shares of a $10 stock as opposed to 1 share of a $1,000 stock. So when the share price has risen substantially, many companies end up declaring a stock split to reduce the share price.

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Amazon & Alphabet¡¯s Recent Stock Splits

In recent times, stock splits for large companies have returned to the spotlight with Amazon.com & Alphabet's announcements.

Amazon.com said earlier this month that it will do a 20-for-1 stock split, followed by Alphabet¡¯s own plan announced in February 2022. Through these steps, companies try to make their lofty stocks more attractive to individual investors.

Recent proposals from Alphabet, Amazon.com and Tesla tell us one thing: Stock splits can spark big rallies as retail traders pile in. Splits are causing day traders to pile in, fueling rallies in these companies¡¯ shares, as per a Bloomberg report.

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