(Bloomberg) – Nvidia Corp. delighted investors when it announced a 10-for-1 stock split earlier this week. The move could be the start of a trend as several leading tech companies trade at prices high enough to tilt the balance sheet toward similar splits, according to a note from Bank of America.
The bank highlights 36 S&P 500 companies with share prices above $500, a level that suggests they may be eligible for a split. Two members of the Magnificent Seven – Microsoft Corp. and Meta Platforms Inc. – are approaching that threshold.
“Stocks with high share prices tend to be excellent candidates for split announcements,” wrote the note’s authors, led by Jared Woodard. “Management teams may feel that lower share prices increase access to the stock.”
Broadcom Inc., Super Micro Computer Inc., ServiceNow Inc. and Netflix Inc. are also among the companies that could be eligible for a split, according to BofA, given their share prices. Booking Holdings Inc. could also be high on the list, as a share of the online travel company is worth more than $3,500. Earlier this year, Booking launched a dividend, another move seen as shareholder-friendly.
BofA’s list includes companies from a variety of industries, including AutoZone Inc., Regeneron Pharmaceuticals Inc. and Eli Lilly & Co. carry high price tags. Earlier this year, Chipotle Mexican Grill Inc. announced. a historic 50-to-1 split.
The significance of stock splits is more psychological than fundamental, as the value of an investor’s shares will not change even if the number of shares he owns does change. In the case of Nvidia, one stock – currently valued around $1,000, making it among the ten highest priced in the S&P 500 Index – will turn into ten worth around $100 each.
While a high price doesn’t necessarily translate into a high valuation, a lower price can make a stock look more attractive, especially to retail investors. Nvidia is already the top holding among retail investors, according to a May 22 report from Vanda Research, which praised the chipmaker’s “exceptional stock price performance” for its popularity. Nvidia has more than doubled this year, building on last year’s nearly 240% increase.
BofA views splits as “a sign of strength,” noting that companies that split their shares typically post strong returns the following year.
“Historically, in the 12 months following a split announcement, stocks have delivered a total return of 25%, compared to 12% for the broad index,” the report wrote, adding that outperformance “is not a guarantee,” while a split is a strong momentum can mean. companies can also struggle in challenging environments.
Nvidia’s split marked the second time it has made such a move in recent years, following a 4-for-1 split announced three years ago. Other mega-cap tech stocks with splits in recent years include Apple Inc. and Tesla Inc.
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