In recent years, Wall Street has been captivated by the explosive growth of artificial intelligence (AI) technologies, but an often-overlooked factor contributing to the upward trajectory of major stock indices in 2024 has been the excitement surrounding stock splits. While the concept of a stock split may seem superficial—essentially adjusting a company’s share price and number of outstanding shares—it can create a significant buzz in the investment community.
Understanding the dynamics of stock splits is essential for investors. A forward stock split makes shares more affordable and accessible to a broader range of investors, while a reverse stock split is typically viewed negatively as it often indicates financial distress. Notably, 2024 has seen a surge in forward stock splits from high-performing companies, which can invigorate investor interest and drive prices higher.
This year has witnessed several notable stock splits tied to the AI sector:
- Nvidia, a leader in GPU technology, executed a notable 10-for-1 forward split this past June. Its stock has surged over 675% since the beginning of 2023, largely due to its dominance in supplying GPUs for AI applications.
- Broadcom completed its first-ever split of 10-for-1 in mid-July, positioning itself as an essential player in network solutions for high-performance computing environments that support AI developments.
- Super Micro Computer is set to implement a 10-for-1 forward split soon, capitalizing on the increasing demand for infrastructure supporting the AI movement.
Amidst these high-profile AI-driven announcements, another company is poised to take center stage with the potential announcement of its own stock split: Costco Wholesale. As Costco prepares to reveal its fiscal fourth-quarter earnings on September 26, speculation abounds regarding a possible split announcement, given its current share price hovering around $892. The company has not split its stock since January 2000, making it an opportune moment to consider a move that could enhance affordability for average investors and employees alike.
Despite institutional investors holding a majority of Costco’s shares—about 72%—a high share price can deter participation from smaller investors and employees interested in the employee stock purchase plan. Historically, Costco has maintained a strong valuation, trading at an unprecedented multiple of 50 times its forward earnings per share. This creates pressure for the company to find innovative ways to drive investor interest as it strives to grow into this lofty valuation.
Costco’s ongoing success stems from multiple factors, foremost among them being its ability to purchase items in bulk, thereby lowering costs and offering competitive prices to consumers. This is particularly advantageous during economic downturns when consumers prioritize value. Furthermore, the company’s membership-based model attracts loyalty, encouraging customers to maximize the benefits of their subscriptions and continue shopping at Costco for essential goods.
With Costco’s strong fundamentals and market position, a stock split could create significant momentum, drawing both attention and investment interest back to the company. Investors should keep an eye on this brewing opportunity, especially if Costco’s fiscal results reinforce its robust operational performance.
For those contemplating an investment in Costco Wholesale, it’s prudent to consider that while this company has great potential, it has not ranked among the Motley Fool Stock Advisor’s top ten stock picks for immediate investment. This highlight signifies that while the prospect of a split could be promising, it’s essential to weigh Costco against other high-performance stocks identified by analysts as better opportunities in the current market.
The story of Costco and the broader implications of stock splits in 2024 underscore a critical lesson for investors: understanding the market’s psyche and potential shifts can offer unique opportunities. Keep a watchful eye on Costco’s upcoming announcements, as they could set the tone for investor sentiment going forward.