NVIDIA stock split might spur trend in tech industry: BofA
NVIDIA's recent announcement of 10-for-1 stock split could potentially influence a trend among high-value tech companies, according to a note from Bank of America (BofA). The bank identified 36 S&P 500 companies with stock prices above $500 as potential candidates for similar splits. "Stocks with high share prices are typically prime candidates for split announcements," wrote Jared Woodard and his team at BofA, suggesting that lower stock prices could "broaden access to the stock."
Tech giants Microsoft and Meta nearing split threshold
Microsoft and Meta Platforms, two of the so-called "Magnificent Seven," are nearing the $500 share price threshold, according to BofA. Other tech companies such as Broadcom, Super Micro Computer, ServiceNow, and Netflix were also identified by Woodard's team as potential split candidates due to their high share prices. Booking Holdings, with a single share costing more than $3,500, could also be a top contender for a split.
High-value companies across sectors may follow suit
BofA's list of potential split candidates extends beyond the tech sector, including companies like AutoZone, Regeneron Pharmaceuticals, and Eli Lilly & Co. These companies also have substantial share prices, making them prime candidates for stock splits. Earlier this year, Chipotle Mexican Grill Inc. made headlines with its historic 50-to-1 split, indicating that the trend is not confined to tech companies alone.
Stock splits have a psychological impact rather than fundamental
The impact of stock splits is more psychological than fundamental, as the value of an investor's stake remains unchanged despite the increase in the number of shares they own. For instance, in NVIDIA's case, one share currently valued around $1,000 will turn into 10 shares each worth about $100. High share prices do not necessarily equate to high valuations but lower prices could make stocks appear more attractive to retail investors.
Stock splits seen as 'sign of strength' by BofA
BofA views stock splits as "a sign of strength," noting that companies that have split their stocks usually see strong returns in the following year. "Historically, stocks have notched 25% total returns in the 12 months after a split is announced, compared to 12% for the broad index," BofA stated. However, it cautioned that outperformance is not guaranteed as while a split can signify strong momentum, companies can also struggle in challenging environments.
