Nvidia's Stock Split Could Spur Peer Moves in Tech; Potential Followers Listed
Nvidia delighted investors when it announced a 10-for-1 stock split last week. The move may be the start of a trend, as several prominent tech companies trade at prices high enough to tip the scales toward similar splits, according to a note from Bank of America.
The bank highlights 36 S&P 500 companies with stock prices above $500, a level suggesting they may be candidates for splits. $Broadcom(AVGO.US$ , $Super Micro Computer(SMCI.US$ , $ServiceNow(NOW.US$ ,and $Netflix(NFLX.US$ are among the companies BofA suggested could be candidates for splits, given their share prices. $Booking Holdings(BKNG.US$ could be high on the list as well, as one share of the online travel agency goes for more than $3,500. Earlier this year, Booking initiated a dividend, another move seen as shareholder-friendly.
BofA’s list includes companies from a variety of sectors, with $AutoZone(AZO.US$ , $Regeneron Pharmaceuticals(REGN.US$ and $Eli Lilly and Co(LLY.US$ also coming with hefty price tags. Earlier this year, $Chipotle Mexican Grill(CMG.US$ announced a historic 50-to-1 split.
In addition, two members of the Magnificent Seven - $Meta Platforms(META.US$ and $Microsoft(MSFT.US$ - are approaching the $500 threshold, with closing share prices last Friday at $478.22 and $430.16, respectively.
Why compile a list of potential stock split candidates? History says stock splits are bullish.
BofA sees splits as “a sign of strength,” and notes that companies that split their stocks tend to see strong returns in the subsequent year.“Historically, stocks have notched 25% total returns in the 12 months after a split is announced, compared to 12% for the broad index,” it wrote.
Although a stock split does not change a company's market value, it often occurs when a company is expanding continuously and has a promising earnings outlook. At this time, investors have strong confidence in the company's stock price, and the post-split stock price will decrease, making a stock look more appealing, especially for retail investors. Therefore, fundamentally strong companies often see an increase in stock price in the short term after a stock split.
Source: Bank of America
However, Bank of America was also quick to note that “outperformance is no guarantee” after a stock split. Companies that announce stock splits still see negative returns 30% of the time, and when they do, the average drop is a sizable 22% over the following 12 months.
“While splits could be an indication of strong momentum, companies can struggle in a challenging macro environment,” the analysts noted. “Companies like $Amazon(AMZN.US$ , $Alphabet-C(GOOG.US$ , $Tesla(TSLA.US$ ,and $DexCom(DXCM.US$ struggled in the 12 months after splits were announced in 2022 as interest rates spiked.”
Source: Investing, Bloomberg, Bank of America
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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57AB : any big company that don't split their stocks is control by the devil
Arrayfunction : I wonder if the supply chain effects will catch up with them at some point