Cramer says Tesla’s stock split is good for the market because it appeals to young investors

CNBC’s Jim Cramer said Wednesday that Tesla‘s decision to split its stock is beneficial for the market overall since it may help young people get interested in buying individual equities.

“Any value in the stock that’s created by this is false,” Cramer said on “Squawk Box.” “But I think the idea of getting newer, younger people involved into the stock market who aren’t just brainwashed to put money into index funds is terrific.” 

Tesla announced a five-for-one stock split Tuesday evening that is set to go into effect Aug. 31. Shares of the electric vehicle maker rose following the news, adding billions of dollars to its market capitalization. Tesla was trading higher by 5% early in Wednesday’s session. 

However, a stock split does not impact a company’s fundamentals at all. But it does lower the cost of an individual share, potentially appealing to people who may have be scared off by a high price tag. That could be particularly at play for Tesla’s stock, which has soared nearly 500% in the last 12 months to trade at nearly $1,450 per share Wednesday. 

“It shouldn’t create wealth, but it can create new people coming in and boy, do we ever need that,” Cramer said. 

Some people have questioned the importance of a stock split in a digital age where people can buy fractional shares on brokerages such as Robinhood and Fidelity.

Even so, the “Mad Money” host said he still believed there remains a strong psychological barrier for retail investors when they encounter stock prices north of $1,000. He referenced both Google-parent Alphabet, which trades at nearly $1,500 per share, and Amazon, which trades around $3,100. 

“It’s just a price tag people can’t get used to so they don’t buy and therefore miss the run, say, from $300 or $400,” Cramer said later on “Squawk on the Street,” although he cautioned people against buying Tesla’s stock ahead of the actual split at the end of the month.  

Cramer, who last month cheered Apple’s decision to enact a four-for-one stock split, said there also is a benefit for companies to attract smaller investors. 

“The best kind of shareholder you can have is an investor small person who wants to stick around, so I am all for this,” he said.