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Stock splits are back as tech giants embrace lower share prices

Splits are now seen as a catalyst for growth. Investors should be wary

Mark Zuckerberg’s Meta is seen as a candidate to split its stock. Photograph: Nick Wass/AP
Mark Zuckerberg’s Meta is seen as a candidate to split its stock. Photograph: Nick Wass/AP
Proinsias O'Mahony's picture
Proinsias O'Mahony
Tue Jul 09 2024 - 05:00

Stock splits are back in fashion.

AI giant Nvidia recently executed a 10-for-one split. Broadcom, one of the world’s most valuable companies following a 60 per cent rally in 2024 that has driven the chipmaker’s market capitalisation above $800 billion (€738 billion), will follow suit with another 10-for-one split on July 12th. In February, retail giant Walmart completed its first split in 25 years.

Four members of the magnificent seven (Nvidia, Alphabet, Amazon, and Tesla) have split their stock since 2022. There is much chatter that Facebook parent Meta, trading above $500 following a fivefold rise since October 2022, may be next.

Stock splits can be a precursor to superior performance over the following year, according to Bank of America. That’s the power of momentum – splits are typically done by high-flying companies, and companies that are doing well often continue to do well.

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Yet splits are an entirely cosmetic exercise. Take a company trading at €500 that executes a 5:1 split. Instead of having one share worth €500, shareholders would have five shares trading at €100. Nothing fundamental has changed.

Are some investors forgetting this? Recent headlines suggest as much. “Broadcom hits fresh record high after stock split announcement”, headlined Yahoo Finance. “Nvidia’s recent 10-for-1 stock split has helped the stock’s rally”, said Barrons. Investors shouldn’t forget a stock split is like cutting a pizza into more slices – it doesn’t change how much pizza you have.

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