In October, Wall Street celebrated the two-year anniversary of the current bull market. While the rise of artificial intelligence (AI) has played an undeniably important role in lifting Wall Street’s major stock indexes to new heights, the excitement surrounding select stock splits in 2024 has been key, as well.
A stock split is a tool publicly traded companies have at their disposal that allows them to superficially adjust their share price and outstanding share count by the same magnitude. These adjustments are cosmetic in the sense that they don’t affect a company’s market cap or in any way impact its operating performance.
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Although there are two types of stock splits — forward and reverse — investors overwhelmingly favor one more than the other. Reverse splits are designed to increase a company’s share price, often with the goal of ensuring continued listing on a major stock exchange. Since this type of split is usually undertaken by struggling companies, most investors tend to avoid them.
On the other hand, forward stock splits are aimed at making a company’s shares more nominally affordable for everyday investors who might not have access to fractional-share purchasing through their broker. This type of split is almost always completed by businesses that have been consistently out-innovating and out-executing their competition, which is what’s made forward splits so popular within the investing community.
To add, companies enacting forward splits have been handily outperforming the benchmark S&P 500. Based on an analysis from Bank of America Global Research, companies conducting forward splits have averaged a 25.4% return in the 12 months following their split announcement since 1980, which is more than double the 11.9% average annual return for the S&P 500 over the same timeline.
Since Walmart kicked things off by announcing a 3-for-1 forward split in late January, more than a dozen high-profile companies have followed suit. This includes AI leader Nvidia, which completed its largest split on record (10-for-1) in June, and AI-networking specialist Broadcom, which enacted its first-ever split, also 10-for-1, in mid-July.
Given the overwhelming success companies conducting forward splits have demonstrated for more than four decades, investors are constantly on the lookout for which market-leading company will become Wall Street’s next stock-split stock.
