This year’s run-up in technology stocks, and particularly chipmakers, has left many with price tags so lofty it may seem like now is the time for firms to split their shares.
The group’s popularity among investors, however, means the companies may not need to take that step to lure more buyers. Corporate executives appear to be getting the message: this may be the first year since 2010 with no splits announced among Nasdaq 100 Index members, according to data compiled by Bloomberg through Monday.
Top performers “don’t have to be as worried about splitting to remain attractive,” said Brian Mulberry, client portfolio manager at Zacks Investment Management. The prevalence of fractional shares also makes companies with high stock prices accessible to many investors, he said.
Splits saw a resurgence during the pandemic as tech stocks skyrocketed amid rock-bottom interest rates and swelling demand for electronic devices and digital services. Apple Inc. and Tesla Inc. enacted stock splits in 2020; for the electric vehicle-maker, it was the second such move in a two-year span. Last year, Amazon.com Inc. and Alphabet Inc. both split their stocks within a few months of each other.
The practice faded as stocks tumbled during last year’s tech-led rout. And this year, there are signs that investors, especially individuals, are willing to pay up for chipmakers even after they logged huge rallies.
“Whenever you have stock splits, it’s about getting more retail” investors, said Kim Forrest, chief investment officer at Bokeh Capital Partners LLC. “But at this point, I don’t know that they need more ownership.”
Nvidia Corp., which closed at $500 a share Monday after more than tripling in 2023, has been a retail favorite all year. Last week, it was the third-most purchased stock for retail buyers, after Tesla and Advanced Micro Devices Inc., according to data from Vanda Research.
In the same period, Broadcom Inc., an Apple supplier that trades well above $1,000 per share, saw net purchases by individuals triple to nearly $30 million from the prior month, according to Vanda.
“It used to be that investors preferred to own stocks that traded between $20 and $80,” said Sam Stovall, chief investment strategist at CFRA Research.
But today, those prices are proving harder to find: A majority of the S&P 500 Index trades above $100, and seven members have eclipsed $1,000, he added.
Benefit Analysis
The move is, after all, purely window dressing: Splits reduce the price by redistributing the same amount of equity over a larger number of shares in an effort to make the shares more affordable for mom-and-pop shareholders.
There can be near-term benefits for shareholders, as announcements of splits can often trigger rallies. Tesla jumped 8% on the day in March 2022 that it reported its plan to split for a second time.
“Although stock splits shouldn’t technically change anything, retail investors largely view them positively as they tend to significantly outperform the market in the 12 months after a split,” said Carl Hazeley, chief analyst at Finimize, an investing insights platform owned by Abrdn Plc.
In the long run, however, the effect is harder to gauge. Alphabet shares slumped more than 20% from its July 2022 split through the end of that year before rebounding this year. Amazon.com shares spiked immediately after a June 2022 stock split, but still ended the year down 50%.
While there are studies suggesting splits help bolster returns, there’s no fundamental reason that should be the case, says Dave Grecsek at Aspiriant LLC.
“If enough investors believe splits are good then that’s all that really matters in terms of price impact,” said Grecsek, a managing director in investment strategy and research. “To be sure though, it’s not what we would call a quality investment thesis and we’d strongly discourage that kind of decision.”
Tech Chart of the Day
Traders had been sticking to blue-chip tech stocks this year as the Federal Reserve raised interest rates. Now, with signals that interest rates may have peaked as inflation cools, investors are developing an appetite for riskier stocks. Non-profitable tech and other growth stocks have outperformed the Nasdaq 100 Index since the market’s mid-October low.
Top Tech Stories
- Apple Inc., just days away from a US ban of its smartwatches, is plotting a rescue mission for the $17 billion business that includes software fixes and other potential workarounds.
- Peter Russell-Clarke, one of Apple’s last remaining senior industrial designers from the Jony Ive era, has stepped down after nearly 20 years at the company.
- Alphabet Inc. will pay $700 million and alter its Google Play policies to settle claims that the app store unlawfully dominates the Android mobile applications market, resolving antitrust complaints brought by attorneys general of about three dozen states and consumers.
- Amazon.com Inc. is in talks with Diamond Sports Group and some of its creditors to invest in the bankrupt regional-sports broadcaster and partner on streaming, according to people familiar with the matter.
- Adobe Inc.’s failed merger with Figma Inc. leaves the software company with about $6 billion in cash that it will likely use to accelerate artificial intelligence development and buy back stock.
Earnings Due Tuesday
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