A wide range of companies have announced stock splits this year after their share prices skyrocketed. When these events occur, companies issue additional shares of stock to current shareholders, which proportionally lowers the price of each individual share. The goal is to make it easier for a wider range of investors to buy that particular stock.
Broadcom (NASDAQ: AVGO) has scheduled its 10-for-1 stock split for after the close of business on July 12; shares will begin trading on a split-adjusted basis after the opening bell on July 15. The semiconductor and networking giant has benefited from the artificial intelligence (AI) boom, which has boosted demand for its AI networks and custom accelerators. That boosted its revenue, and its stock price followed suit. It has risen nearly 90% over the past year and briefly surpassed $1,800 in June.
These top tech stocks would make solid long-term investments, but the question is: Should you buy into the shares before or after the July 12 stock split? Let’s consider the arguments for both strategies — and discover the one detail that gives us the answer.
Arguments for buying before the split
A stock split does not fundamentally change a company or its stock. Although the price per share will be lower, the move has no real impact on the valuation. This means that the stock can actually be more expensive after the split than it was before. This happened with Nvidia Recently, the tech giant’s shares rose nearly 30% between the day the split was announced and the day of the event itself.
If you view Broadcom as a strong long-term player, it’s a good idea to buy shares now rather than wait for the company to work through its financial woes.
And there are reasons to be optimistic about Broadcom. The combination of strong AI-related demand and its recent acquisition of cloud software company VMware appears to be fueling a new era of growth for the company. In its last reported fiscal quarter, revenue rose 43% to more than $12 billion on the back of these two factors. Given that we’re still in the early days of the AI boom and VMware integration, there’s likely plenty more growth to come.
VMware’s revenue, which grew from about $2.1 billion in Broadcom’s fiscal first quarter, grew to $2.7 billion in its fiscal second quarter (ended May 5), and management expects it to reach $4 billion in quarterly revenue. And Broadcom is forecasting AI revenue for fiscal 2024 to top $11 billion.
The case for buying after the split
The argument for buying after the split is also pretty simple. It’s true that Broadcom won’t necessarily be cheaper after the split than it is now (unless the stock price falls, and the price movements are unrelated to the split). But a lower price could make it easier for some investors to buy the stock, because if you plan to invest less than the current price of the stock, you can do so without having to rely on fractional shares.
So, for example, if you want to invest $500 in Broadcom today and you don’t have the option to purchase fractional shares through your broker (or you choose not to), you can’t invest directly in the company. I say “directly” because you can always get exposure to Broadcom through the many index funds and exchange-traded funds that have the stock in their holdings.
But if you want to avoid the fractional share route, you’re probably better off buying the shares after the split.
What should you do?
Both arguments make sense, so which one should you follow? With the split just around the corner, the decision should depend on the funds you have available to invest. If you plan to invest the amount of Broadcom’s current share price or more, there’s no reason to wait. Now is a great time to get in on this top AI player.
However, if you plan to invest less than the current share price, it may be a good idea to invest right after the stock split, as you will have easier access to full shares. Fractional shares are fine, but if your brokerage doesn’t offer them, it can be complicated to get into Broadcom today. However, after the split, you won’t have to worry about this anymore.
But what if the stock price goes up or down in the coming days, pushing the valuation up or down? If you’re a long-term investor, this won’t matter to you because it won’t have much of an impact on your returns in a few years. It’s impossible to reliably time the market so that you can buy a particular stock at the lowest price. But that’s okay. In general, buying a strong company at a fair price gives you a great chance of generating attractive returns over the long term.
And before or after the upcoming stock split, Broadcom should make a compelling AI growth buy.
Should You Invest $1,000 in Broadcom Now?
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
Should You Buy Broadcom Before or After the July 12 Stock Split? 1 Detail Gives Us the Answer was originally published by The Motley Fool
