Stock Split Watch: Is Microsoft next?

tech titan microsoft (MSFT 1.22%) Our company has conducted stock splits nine times over its long history. Suppose he purchased 1 share between the 1986 initial public offering (IPO) and his first split in 1987. After all the splits he will have 288 stubs. If he invested $1,000 in Microsoft on the day of the first stock split, today he would be worth $1,050,000.

MSFT data by YCharts.

It’s been a while since Microsoft chose that path. As you can see from the graph above, the company hasn’t split its stock since February 2003, when the number of shares last doubled.

Or maybe I should say, “For the last time ever.” Considering Microsoft’s incredible profits over the past 21 years, we wouldn’t be surprised to see another stock split in the near future.

Just to be clear, I’m not holding my breath over this possibility, but it’s by no means guaranteed. A stock split does not increase the value or expand the buying range; it simply makes it easier for him to buy one share. At the same time, stock splits often indicate that a company’s board and management have high confidence that the stock price will continue to rise, and a vote of confidence should be considered good news.

Below, we’ll take a look at why Microsoft might want to remove its stock, which currently trades at $389 per share and has a market cap of $2.9 trillion, from its lofty position.

Whether you slice it into 8 or 16 pieces, the delicious pizza pie is still the same. Image source: Getty Images.

AI is the main reason Microsoft stock could soon be split

Ever since OpenAI introduced its ChatGPT system to the unsuspecting world, the stock has performed surprisingly well. Artificial intelligence (AI) has become a key value driver across the technology sector, and Microsoft is at the epicenter of this innovative revolution.

The company has committed $13 billion to OpenAI, and the AI ​​engine that powers ChatGPT runs on Microsoft’s Azure cloud computing platform. Generative AI capabilities are appearing across the software giant’s product portfolio.

Microsoft is at the forefront of the AI ​​revolution, bringing AI to everything from its Azure platform to enterprise software. This strategy is showing tangible results, including rapid growth in the customer base for Azure AI services and the potential for increased revenue with an AI-enhanced version of Microsoft 365. This is not just a technological leap forward, but a fundamental strategic shift with serious economic implications.

Of course, it’s not the only element in Microsoft’s financial cocktail. The company should also benefit from improving global economic health as inflationary pressures fade. Additionally, the recently completed acquisition of video game giant Activision Blizzard should bring significant changes to the company’s overall business.

But nothing can match the promise and potential of its AI expertise. In the words of Microsoft founder Bill Gates, “The development of AI is as fundamental as the creation of the microprocessor, the personal computer, the Internet, and the mobile phone.” Securing a leading role in that revolution This should help propel Microsoft’s long-term growth to new heights.

These are the reasons why Microsoft is on the threshold of a whole new business era and could announce a stock split in 2024. Predicting strength by stock splits seems like a reasonable move, but those stocks certainly look expensive today. Why not divide the largest market cap of all into more slices?

How does a stock split change Microsoft’s shareholder value?

It doesn’t really matter if Microsoft doesn’t split its stock this year or ever. Most brokerages now support buying and selling fractional shares, and stock trading generally does not incur transaction fees.

If you only have $50 to invest in Microsoft this month, it’s very easy to order 1/10th of all shares. The end result is exactly the same as waiting for a 10-for-1 stock split and then buying one stub.

At this point, no one knows whether Microsoft will decide to split its stock, and the stock price could fluctuate significantly by then. You can start trading fractional shares today at a well-established share price.

There’s a good chance Microsoft will announce a stock split soon. Until the long-awaited split occurs, feel free to buy, sell, or hold the stock based on your own analysis. Also, be careful not to let it significantly change your investment thesis. A confident leadership team may be good news, but that’s the only investable quality I see in stock splits.