Stock Split Watch: Is MicroStrategy or Microsoft Next?

Stock-Split Watch: MicroStrategy Is Next

The stock market has seen plenty of stock splits in 2024. Driven higher chiefly by the artificial intelligence (AI) boom and slower inflation trends, several high-priced stocks have been sliced into a larger number of smaller shares. Examples of big-name announcements so far include a 10-for-1 split of Nvidia (NASDAQ: NVDA) shares in early June, a 50-for-1 split in Chipotle Mexican Grill (NYSE: CMG) two weeks later, and Broadcom's (NASDAQ: AVGO) 10-for-1 split over this very weekend. This was Nvidia's second split since 2006. In contrast, the other two industry titans had never resliced their shares before. None of these stock splits added or burned any real value for shareholders. The splits merely rearranged the same total market value into a larger number of shares, reducing the price per share and making the stock more accessible. Next in line: MicroStrategy So who's next in line for a stock split? As it turns out, the winning name is business intelligence specialist MicroStrategy (NASDAQ: MSTR). The board of directors decided on a 10-for-1 stock split earlier this week, to be executed after the closing bell on Thursday, Aug. 1. The company hadn't executed a split since a 1-for-10 reverse split to prop up a fading stock price in 2002. Founder and chairman Michael Saylor's all-in bet on Bitcoin (CRYPTO: BTC) as an alternative to cash reserves has worked wonders so far. The stock is up more than 225% over the last 52 weeks and 1,060% in four years, driven by smaller gains in Bitcoin's price per coin. These days, MicroStrategy stock is changing hands for the princely sum of $1,310 per share. And MicroStrategy has evolved into a pretty direct bet on Bitcoin in recent years. Is it time to slice MicroStrategy's stock differently? Image source: Getty Images. MicroStrategy's recent financial maneuvers MicroStrategy's stock chart and financial activities in 2024 sent strong hints of a possible stock split. For example, MicroStrategy recently completed an $800 million offering of 2.25% convertible senior notes due in 2032. The notes are convertible into cash, shares of MicroStrategy's class A common stock, or a combination of both. Notably, the initial conversion price is approximately $2,043.32 per share, a 35% premium over the stock's average price on June 13. This premium indicates strong investor confidence in MicroStrategy's stock performance. Additionally, the stock has been floating higher on Saylor's Bitcoin strategy. At the end of March, the company held approximately 214,300 Bitcoins with a market value of $15.2 billion. The company has consistently added to its Bitcoin holdings, financed by cash flows from the software business, stock sales, and fresh debt papers. Michael Saylor's company raised over $1.5 billion in the first quarter alone through convertible debt offerings, using that cash to acquire 25,250 additional Bitcoins. MicroStrategy also raised $800 million in new debt on June 18, aiming to purchase some more Bitcoin with the proceeds. Amid this bustling Bitcoin-buying action, the cryptocurrency's price has increased more than 90% over the last year. Most market watchers (myself included) expect the Bitcoin gains to continue in the second half of 2024 and next year, powered by the predictable patterns of Bitcoin's halving cycles and the recent addition of exchange-traded funds (ETFs) based on real-time Bitcoin prices. If that theory plays out as expected, MicroStrategy's stock should also see even higher stock prices over the same period. Why a stock split makes sense for MicroStrategy Given MicroStrategy's soaring stock price and Saylor's daring financial strategies, the announced 10-for-1 stock split makes MicroStrategy shares more accessible to a broader range of investors. Currently trading just over $1,300 per share, the stock's high price can be a barrier of entry for smaller investors -- especially if they are unaware of or uncomfortable with buying fractional shares of high-priced stocks. Low-budget investors will find it easier to reach for a stock priced around $130 per share. So MicroStrategy's strategic financial maneuvers, strong Bitcoin holdings, and high stock price create an ideal environment for a stock split. Now that the split is coming soon, investors should still keep a close watch on this tech veteran and crypto maven. Only time will tell how the Bitcoin-centric strategy will work out in the long run, but it's certainly off to a good start. Should you invest $1,000 in MicroStrategy right now? Before you buy stock in MicroStrategy, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and MicroStrategy wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $791,929!* Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. Anders Bylund has positions in Bitcoin and Nvidia. The Motley Fool has positions in and recommends Bitcoin, Chipotle Mexican Grill, and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Stock-Split Watch: Is Microsoft Next? | The Motley Fool

Amid the stock split talk, investors need to keep Microsoft (MSFT -0.25%) in mind. The current price of around $460 per share is well below the nominal prices at which stocks like Broadcom or Nvidia recently announced splits. Admittedly, it might be presumptuous to say that Microsoft is the next stock split. Many stocks are soaring to very high triple-digit prices amid an improving economy and game-changing market shifts in the tech sector. However, Microsoft differs from these names in one key area, which could prompt a split sooner rather than later. Put simply, Microsoft may split soon because it is one of the 30 stocks that make up the Dow Jones Industrial Average. Unlike the other major indexes, the Dow is a price-weighted index. This means stocks with high nominal prices have disproportionate sway over the index score. Admittedly, the index's price-weighting approach remains controversial. So far, Berkshire Hathaway has allowed its shares to maintain a very high price rather than seek inclusion in the Dow. Nonetheless, other companies like Microsoft value being a Dow component and will probably bow to pressure to split its stock to maintain that status. That pressure could come soon as it is among the highest-priced stocks in the Dow 30. It closely approximates Goldman Sachs's current price and is close in price to UnitedHealth Group, which sells at around $505 per share right now. Additionally, investors may recall that Dow component Apple initiated a 4-for-1 stock split in August 2020 when its pre-split price was close to $500 per share. Thus, it should not surprise anyone if Microsoft were to announce a stock split in short order. Investors should also remember that Microsoft is, ultimately, a stock split candidate because of its underlying business growth. The company's paradigm shifted after Satya Nadella became CEO in February 2014. Nadella's most notable accomplishment was making Microsoft more of a cloud-oriented business, shifting its software products to the cloud and making them mobile-friendly. Under Nadella's leadership, Microsoft's Azure became the second-most popular cloud infrastructure platform, lagging behind only Amazon's Amazon Web Services, which pioneered the industry. Also, Nadella made Microsoft more artificial intelligence (AI)-oriented. The company partnered with OpenAI to link its search engine to ChatGPT. Through this, it launched Copilot, a chatbot powered by generative AI. This partnership also linked ChatGPT with its Bing search engine, making Microsoft a credible competitive threat to Alphabet's search business. As a result, Microsoft's market cap has grown to over $3.4 trillion, making it one of the world's largest publicly traded companies. Given that the cloud and AI will probably continue growing for years to come, the company's growth would eventually make a split necessary, even without the association with the Dow. Ultimately, when Microsoft will next split its stock is unclear, but a split is likely coming soon. Admittedly, its position as one of the Dow 30 stocks is likely to hasten a split. Allowing Microsoft's stock price to climb much further without a softening stock split could give the software giant an uncomfortably strong influence over the popular market index. However, investors should probably credit the company's tech-driven growth for making the split necessary in the first place. Under Nadella, Microsoft is back on the cutting edge of tech and has positioned itself as a major force in the cloud and AI industries. Such industry leadership should keep its stock growing, making an eventual split likely with or without any Dow-related pressure.