Amazon became the latest mega-cap tech giant to announce a stock split this week, and with shares rising on the news—much like Google-parent Alphabet after its split last month—experts predict this could become a growing trend, with several other highly -valued companies that might be next.
Shares of Amazon jumped over 6.5% on Thursday following the announcement of a $10 billion buyback and 20:1 stock split, its first since the dot-com boom in 1999, which will go into effect in June 2022.
Amazon became the latest highly valued tech company to see its share price surge following a stock split, following in the footsteps of Google-parent Alphabet’s 20:1 split last month, Tesla’s 5:1 split in August 2020 and Apple’s 4:1 split in July 2020.
“The ‘caché’ of having a very highly priced stock is wearing off,” and after years of seeing so few stock splits, that trend may be picking back up again, says Neil MacNeale III, an investment advisor who specializes in stock splits.
While conventional wisdom on Wall Street says that stock splits don’t alter a company’s market value beyond making shares more accessible to everyday retail investors, there is evidence that the move provides a short-term boost.
Stock splits historically led to better stock price performance, according to analysts at Bank of America who point out that since 1980, S&P 500 companies that have pursued splits tend to see shares outperform the index three, six and 12 months after the announcement.
MacNeale calls this phenomenon the “stock split advantage,” where companies that announce splits outperform the market by several percentage points, though that effect is only for a limited period of time, with the boost wearing off after a few years, he says.