To The Moon

Nvidia delighted investors last week by announcing a 10-for-1 stock split. This move could signal a broader trend, as several prominent tech companies trade at prices high enough to consider similar splits, according to a note from Bank of America $Bank of America(BAC)$ . The bank highlights 36 S&P 500 companies with stock prices above $500, suggesting they might be candidates for splits. Among these are Broadcom (AVGO), Super Micro Computer (SMCI), ServiceNow (NOW), and Netflix (NFLX) $Netflix(NFLX)$ . Booking Holdings (BKNG) could be high on the list as well, with shares priced over $3,500. Earlier this year, Booking initiated a dividend, another shareholder-friendly move. BofA's list includes companies from various sectors, such as AutoZone (AZO), Regeneron Pharmaceuticals (REGN), and Eli Lilly and Co (LLY), all with hefty price tags. Additionally, Chipotle Mexican Grill (CMG) announced a historic 50-to-1 split earlier this year. Two members of the Magnificent Seven, Meta Platforms (META) and Microsoft (MSFT), are approaching the $500 threshold, with closing prices last Friday at $478.22 and $430.16, respectively. Why compile a list of potential stock split candidates? History suggests stock splits are bullish. BofA sees splits as “a sign of strength,” noting that companies that split their stocks tend to see strong returns in the subsequent year. Historically, stocks have notched 25% total returns in the 12 months after a split is announced, compared to 12% for the broad index. While a stock split does not change a company's market value, it often signals continuous expansion and a promising earnings outlook. At this time, investors have strong confidence in the company's stock price, and the post-split stock price will decrease, making the stock look more appealing, especially for retail investors. Therefore, fundamentally strong companies often see an increase in stock price in the short term after a stock split. However, BofA was quick to note that “outperformance is no guarantee” after a stock split. Companies that announce stock splits still see negative returns 30% of the time, and when they do, the average drop is a sizable 22% over the following 12 months. While splits could be an indication of strong momentum, companies can struggle in a challenging macro environment. For instance, companies like Amazon (AMZN), Alphabet-C (GOOG), Tesla (TSLA)$Tesla Motors(TSLA)$ , and DexCom (DXCM) struggled in the 12 months after splits were announced in 2022 as interest rates spiked. In a nutshell, while stock splits can be a bullish indicator, it's essential to consider the broader economic environment and the individual company's fundamentals. While splits can make stocks more accessible to retail investors and signal confidence from the company, they do not guarantee positive returns. Investors should remain cautious and consider all factors before making investment decisions based on stock splits. $NVIDIA Corp(NVDA)$