What is the story
Nvidia’s recently announced 10-for-1 stock split could influence the course of highly valued technology companies, according to a Bank of America (BofA) note.
The bank identified 36 S&P 500 companies with share prices above $500 as candidates for similar stock splits.
“Highly priced stocks are typically good candidates for stock split announcements,” Bank of America’s Jared Woodard and team wrote, suggesting that lower stock prices could “widen access to shares.”
Tech giants Microsoft and Meta on the brink of splitting
Shares of two of the so-called “Magnificent Seven” companies, Microsoft and Meta Platforms, are approaching the $500 threshold, according to BofA.
Woodard’s team also named other tech companies as potential split candidates, including Broadcom Inc., Supermicro Computer Inc., ServiceNow Inc. and Netflix Inc., due to their high stock prices.
Booking Holdings, with a stock price of over $3,500 per share, could also be a prime candidate for a stock split.
High-value companies across a range of sectors are likely to follow suit.
BofA’s list of potential split-offs also includes companies outside the technology sector, such as AutoZone, Regeneron Pharmaceuticals and Eli Lilly and Co.
These companies also have fairly high stock prices, making them prime candidates for stock splits.
Earlier this year, Chipotle Mexican Grill Inc. made headlines with its historic 50-for-1 stock split, showing that this trend isn’t just limited to tech companies.
Stock splits have more psychological than fundamental impact
The impact of a stock split is more psychological than fundamental, as the value of an investor’s shares remains the same even as the number of shares they hold increases.
For example, in the case of NVIDIA, one share currently worth about $1,000 would become 10 shares worth about $100 each.
A high share price doesn’t necessarily mean a high valuation, but a lower share price can make a stock look more attractive to retail investors.
Bank of America sees stock split as ‘sign of strength’
BofA sees stock splits as a “sign of strength” and notes that companies that split their stock often see stronger profits the following year.
“Historically, stocks have delivered a total return of 25% in the 12 months following a split announcement, compared with 12% for the broader index,” Bank of America said.
But he cautioned that while stock splits can signal strong momentum, they are no guarantee of superior performance, as companies can also struggle in tough environments.
