July 21, 2024

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Here Are 5 Things Smart Investors Should Know About Broadcom’s Upcoming 10-for-1 Stock Split

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The stock market has gotten off to a scorching start in 2024. About midway through the year, the S&P 500 has gained roughly 15% while the tech-heavy Nasdaq Composite is up nearly 18%.

One of the hottest sectors fueling the market to new heights is technology — primarily driven by euphoria surrounding all things related to artificial intelligence (AI). As stock prices continue to surge, some companies have resorted to stock splits in an effort to open shares up to a broader base on investors.

Semiconductor company Broadcom (NASDAQ: AVGO) is the most recent chip company to announce a stock split, joining its peers Nvidia and Lam Research.

Let’s dive into some important details regarding stock splits, and assess whether Broadcom could be a lucrative opportunity for long-term investors.

1. What are stock splits and how do they work?

A stock split is a financial engineering instrument during which a company’s stock price and share count change by the factor in the split ratio.

In early June, Broadcom announced that it will be completing a 10-for-1 stock split. This means that after the split occurs, Broadcom’s outstanding shares will rise by 10x while its share price will be divided by 10.

Let’s take a look at an example. In the table below, you can see Broadcom’s current share count, stock price, and market cap on both a pre- and post-split basis.

Item

Pre-Split

Post-Split

Share count

465 million

4.6 billion

Stock price

$1,698

$169

Market cap

$790 billion

$790 billion

Data source: Broadcom SEC filings and Yahoo! Finance.

If the split were to occur today, Broadcom’s outstanding shares would rise from about 465 million to 4.6 billion. At the same time, the company’s stock price would be reduced by a factor of 10 — dropping from $1,698 to $169. Given this dynamic, investors can see that a stock split does not change the market cap of a company.

A chip labeled AI on a circuit board.

Image source: Getty Images.

2. Why might Broadcom be splitting its stock?

AI has been one of the biggest tailwinds in the capital markets over the…



2024-06-25 06:41:00

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