Will Nvidia spur a stock-split frenzy? Why companies have been waiting longer to split.

By Emily Bary

Companies like Broadcom and Chipotle say lower stock prices are more accessible. But the prevailing mindset has been that a higher price signals companies are 'doing something right.'

Despite what seems like a rush of high-profile stock-split announcements from companies including Nvidia Corp., Broadcom Inc. and Chipotle Mexican Grill Inc., management teams are generally taking their time before heading to Splitsville.

Through Wednesday's close, 10 members of the S&P 500 SPX had announced stock splits on the year, according to data from Birinyi Associates. That puts the index on pace for its busiest year of splits in almost two decades, assuming a similar rate of announcements in the second half of the year. But executives are still taking a far more patient approach to splits than they were last century and into the start of the new millennium.

There was just one split among S&P 500 SPX components last year, and the annual number of splits within the index has been in the single digits for much of the past decade. Still, while there's been a relative uptick this year, the rate of splits was far higher around the dot-com boom, hitting a high of 93 in 1997, based on Birinyi Associates data going back to 1990.

Qualcomm Inc. (QCOM), a stock-split poster child of that tech boom, ended up conducting two splits in 1999 - a 2-for-1 split at $212 per share that May and a 4-for-1 at $647 per share that December, according to the company's investor-relations site.

In the modern era, Nvidia's (NVDA) 10-for-1 stock split brought its price down from about $1,200 to about $120 when trading began on a split-adjusted basis last week. But even that new price would've been deemed too expensive for many corporate leaders of the 1950s and 1960s.

Back then, the sweet spot was between $20 and $80, according to CFRA Chief Investment Strategist Sam Stovall. That's because executives wanted to ensure their stock price was guarded against unseemly low levels in the event of a selloff but also not at risk of crossing into triple-digit territory during a bull market.

"Nobody wanted to pay triple digits for one share of stock," Stovall said. Additonally, people would equate stock price with valuation, rather than looking at metrics like price-to-earnings or price-to-book, he added. That meant a stock with a high price could be viewed as expensive.

Historically there were also concerns about the issue of round lots - orders for, say, 100 or 200 shares - versus odd lots - or orders for something like seven shares. "Odd lots cost more than round lots," Stovall said, and stock splits made round lots more affordable.

Now, however, most people are able to trade at no cost, eliminating that issue.

There's also been a shift in mindset among management teams that's tamped down the number of splits. Executive began to think that a higher mindset "implied exclusivity" and would show investors "that the company must be doing something right," Stovall said. Berkshire Hathaway Inc. (BRK.A) (BRK.B) helped catalyze that idea, he added.

"I think that carries forward to today, but you know, sometimes you can have too much of a good thing," Stovall noted. Though executives largely held off on splits last year to gauge whether the bull market could keep going, Nvidia, Broadcom (AVGO), Walmart Inc. (WMT) and Chipotle (CMG) are among companies that sought to make their share prices more attractive through recently announced splits.

With the advent of fractional trading, a stock price above $1,000, which Chipotle and Broadcom had at the time of their split announcements and Nvidia had at the time its split was enacted, doesn't necessarily impede investors from buying. Still, in many recent split announcements, companies said they were making these moves to make their share prices more accessible to individuals and employees.

See also: Broadcom shares surge as it follows Nvidia's lead with plans for a stock split

What does that signal about the market more broadly? Stovall wonders if splits intended to make share prices look more attractive represent something that takes place closer to "the end [rather] than the beginning of a stock market advance."

There are other potential reasons to conduct stock splits as well. In Nvidia's case, a lower stock price could help make the company a more attractive candidate in the price-weighted Dow Jones Industrial Average DJIA, where high stock prices have an outsize impact on performance, essentially precluding the index's keepers from considering high-priced new entrants.

And Nvidia's stock "probably got a little octane boost" after the company announced its split plans last month. "Imitators would be crossing their fingers that the same would be beneficial to them," Stovall said.

About 10 companies within the S&P 500, though, are sticking with stock prices above the $1,000 mark. That group is headlined by homebuilder NVR Inc. (NVR), whose shares closed Friday north of $7,600, and online-travel company Booking Holdings Inc. (BKNG), with a stock price above $3,800.

-Emily Bary

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06-17-24 0723ET

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