Speculation about Microsoft Corp. potentially executing a stock split is heating up as the tech giant's share price hovers around $420, sparking conversations amid rising stock prices and pressures from the Dow Jones Industrial Average.
Once regarded as the star of the market, Microsoft (NASDAQ: MSFT) has experienced long periods of stagnation with respect to stock splits. The company, which launched its initial public offering (IPO) back in 1986, was prolific with stock splits throughout the late 1980s and early 2000s, initiating nine splits between 1987 and 2003. Since then, it has been nearly two decades without making such moves.
The drought of stock splits might be attributed to the leadership of former CEO Steve Ballmer, under whom Microsoft’s stock value plummeted over 30% from 2000 to 2014. Conversely, under current CEO Satya Nadella, who stepped up to the helm, the company has witnessed astonishing growth of around 1,000%, with its stock reaching record nominal prices. Interestingly, this growth factor alone may not be enough to trigger another stock split.
Other high-profile tech companies, like Nvidia and Broadcom, executed stock splits after their share prices soared past the $1,000 mark. While Microsoft's current price is moderately high, it does not fall within the top tier of incredibly priced stocks on the market; its remarks, at just above $420, place it outside the top 100 for highest stock prices. With brokerage services now offering options for fractional shares, many small investors are still able to participate even at nominally higher figures.
What could drive Microsoft to finally initiate its next stock split? The answer may lie in its role within the Dow Jones Industrial Average. First joining the 30 stock index back in 1999, Microsoft's presence elevated its profile significantly. The Dow is structured as a price-weighted index, which means stocks with higher nominal prices wield more substantial influence on the index. At present, only Goldman Sachs and UnitedHealth Group hold higher share prices than Microsoft, positioning it as one of the more powerful components of this prestigious index.
Interestingly, Microsoft’s chief competitor, Apple Inc., faced down similar mounting pressures prior to its stock split in 2020. Back then, Apple’s stock price was hovering near $450 per share before executing a 4-for-1 split, effectively lowering its per-share price to just over $110. While Apple has never officially linked its decision to external pressure from S&P Dow Jones Indices, the timing is certainly suggestive—heightening the likelihood of Microsoft experiencing similar external influence as its share price inches closer to split-worthy levels.
This raises questions about what Microsoft’s next move might be. Historically, the company has opted for either 2-for-1 or 3-for-2 splits. Should Microsoft decide to execute another 2-for-1 split, it would bring its share price nearer to some of the other Dow components, boosting accessibility for potential investors. Given Microsoft’s current market capitalization at approximately $3.1 trillion—placing it on the brink of becoming the first company to breach the $4 trillion market cap—such moves may also represent strategic positioning to maintain interest and investment viability within its stock.
Speculation is high, and consensus suggests Microsoft will likely initiate some form of stock split this year, perhaps driven primarily by pressure from S&P Dow Jones Indices. While today’s investors appear more accustomed to higher share prices, many stocks now exist within similar or even higher ranges than Microsoft. Yet, only two of those options make up the Dow 30 index; this reality heightens the stakes and possibilities for Microsoft.
With burgeoning interest raised just by being part of the Dow Jones Industrial Average, the belief is solidifying around the notion of Microsoft's board taking the steps necessary to stay firmly embedded within the influential index.
Before rushing to follow this speculation, potential investors must weigh the options. The Motley Fool's Stock Advisor has identified ten stocks deemed worthy investments—and Microsoft doesn’t make the cut at this moment. Choosing wisely will be integral for anyone seeking to navigate the electrifying waters of the stock market.