This brand-name tech stock is set to split its shares for the first time in almost a quarter of a century.
For a majority of the last two years, no trend has excited the investing community quite like the rise of artificial intelligence (AI). But in 2024, the euphoria surrounding stock splits has, arguably, played an equally critical role in lifting stock valuations.
A stock split is a mechanism publicly traded companies have available that allows them to adjust their share price and outstanding share count by the same factor. What’s worth noting about stock splits is that they’re entirely cosmetic. Adjusting a company’s share price and share count has no impact on market cap or operating performance.
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Though there are two types of stock splits — forward and reverse — investors overwhelmingly favor companies conducting forward splits. This is the type of split designed to reduce a company’s share price to make it more nominally affordable for everyday investors, and it’s almost always undertaken by businesses that are handily out-innovating and out-executing their peers.
In 2024, more than a dozen prominent companies have announced or completed stock splits, and all but one have been of the forward-split variety.
This week, one of the cheapest tech stock-split stocks of 2024 will have its moment in the sun as it readies for its first split in nearly a quarter of a century.
AI stock-split stocks have hogged the spotlight for much of the year
With high-flying stocks often drawing the attention of Wall Street and investors, it should come as little surprise that much of the focus this year has been on artificial intelligence-driven companies completing stock splits. Although Super Micro Computer and Lam Research effected respective 10-for-1 forward splits of their own last week, I’m primarily talking about the buzz AI leaders Nvidia (NVDA 1.69%) and Broadcom (AVGO 2.76%) have created.
Nvidia was the first top-tier AI stock to complete a forward split in 2024, with the company’s historic 10-for-1 split taking effect after the close of trading on June 7.
The need for Nvidia to split — its shares topped $1,200 the day its split went into effect — is a direct reflection of its dominance in high-compute enterprise data centers. Demand is off the charts for the company’s H100 graphics processing unit (GPU) and next-generation Blackwell GPU platform, which have sent sales, profits, and gross margin soaring. Nvidia’s exceptional pricing power has allowed it to charge between a 100% and 300% premium to competing AI-GPUs.
Meanwhile, Broadcom followed in Nvidia’s footsteps five weeks later by completing its first-ever stock split, also 10-for-1, following the close of trading on July 12.
Even though Broadcom has a considerably more diverse revenue stream than Nvidia, it’s Broadcom’s AI networking solutions that have driven investor interest in the company. Broadcom’s networking solutions are responsible for connecting GPUs in AI-accelerated data centers in order to reduce tail latency and maximize their computing potential.
But while Nvidia and Broadcom have been the talk of Wall Street, and are, without question, the highest-profile stock-split stocks of 2024, they’re no longer the fundamental bargains they once were. The tech goliath set to complete its stock split later this week certainly fits the definition of cheap.
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Wall Street’s newest tech stock-split stock is a bargain
In mid-May, consumer electronics juggernaut Sony Group (SONY 0.90%) unveiled plans to conduct a 5-for-1 forward split — its first split since May 2000. Though the effective date for this split was Oct. 1 in its home market of Japan, it’s Oct. 8 for the company’s American depositary receipts (ADRs) listed in the U.S. Long story short, when Sony Group opens for trading on Oct. 9, its New York Stock Exchange-listed shares should be closer to $19.
Most consumers are probably familiar with Sony because of its gaming division. The PlayStation 5 is the top-selling ninth-generation video game console and made its debut in late 2020. Even though it’s been almost four years since it hit retail shelves, Sony recently increased the price of PlayStation 5 by a double-digit percentage in Japan as a way to boost sales.
With new gaming consoles typically coming out every six or seven years, excitement is starting to build for Sony’s next successor. Though we’re still, presumably, at least two years away from the company recognizing sales from its next-gen gaming system, it’s not uncommon for investors to somewhat front-run an expected boost in sales and profits.
Additionally, Sony is enjoying meaningful sales growth from PlayStation Plus. This is the subscription service that allows users to game with their friends, access exclusive games, and store their data in the cloud.
But the sum of Sony’s parts includes more than just gaming. It’s also a major player in music, movies, and Imaging and Sensing Solutions (ISS). The latter is particularly important, with Sony being one of the key suppliers of image sensors used in next-generation smartphones. ISS sales surged 21% in the company’s fiscal first quarter (ended June 30), with operating income from this segment nearly tripling.
Japan’s largest businesses are also known for their capital-return programs — and Sony is no exception. On the same day its 5-for-1 split was announced, Sony’s board authorized the repurchase of up to 30 million shares, representing 2.46% of the company’s outstanding count. Buybacks have the ability to increase earnings per share (EPS) for companies with steady or growing net income. Over time, share repurchases can make Sony’s stock even more attractive to fundamentally focused investors.
Last but not least, Sony Group’s stock is reasonably cheap in a generally pricey tech sector. Its forward price-to-earnings (P/E) ratio of 15 is considerably lower than Nvidia (forward P/E of 30) and Broadcom (forward P/E of 28), as well as the benchmark S&P 500 (forward P/E of 24). With a new console looming and high-margin PlayStation Plus revenue rising, Sony Group has the traits of a cheap stock-split stock that can be bought with confidence by opportunistic long-term investors.
Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lam Research and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
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