Investing

Will Nvidia and Broadcom Follow Buffett's Lead and Split Shares?

Austin Smith

Published: April 5, 2024 7:24 am

In today’s episode of the 24/7 Wall St. Podcast Doug McIntyre and Lee Jackson look at stock splits. Why do companies do them, what does it change, what are the superstitions, and more. They also look back in time at Warren Buffett’s famous splitting of Berkshire Hathaway (NYSE:BRK.A) shares and wonder whether AI darlings Nvidia (Nasdaq:NVDA) or Broadcom (NASDAQ:AVGO) will follow suit.

Transcript:

This is Doug McIntyre, the editor-in-chief at 24-7 Wall Street.
And I’m here with Lee Jackson, who’s our expert on the stock markets, finance, economics.
We’re going to discuss stock splits a little.
We’re starting to see this now as the market runs up.
And a lot of people don’t understand, you know, why does a company do this?
So the first question, Lee, is why does a company split its stock?
Well, I think for many companies, especially Chipotle, for instance, which announced a 50 for one stock split.
There’s a pretty easy answer.
The stocks are too expensive and the average investor can’t buy a lot of shares of Chipotle at 2,500 bucks a share.
But when they split it, they’ll have a lot better chance to get, you know, a retail investor that wants to own the shares.
To me, the greatest example in history of this, and you can probably tell us a bit about this is Warren Buffett went, Berkshire Hathaway, nobody could afford it.
Forget a retail investor.
Not the A shares, you still can’t.
Right.
So that was a big deal.
How high did that stock get and why did he make that decision?
Well, the A shares are still six figures.
I haven’t looked in a while because I just don’t have the capability.
But when he brought out the BRKB or the B shares, 10 of those was equal to X amount of the A shares or whatever the… calculation was, but that’s why he did that.
And it’s not that the V shares are cheap.
They’re in the 250, 280 range, maybe higher.
But it was at least provided some sort of vehicle for smaller investors to be in there.
Right.
People didn’t want to pay over $10,000 for a single share of stock.
What happens the day after a stock splits?
There’s a lot of sort of very weird beliefs about, you know, the next day the stock’s going to drop.
I mean, what happens?
Well, I really think it depends on the company because in many cases, because again, we want to remind our viewers that a stock split does nothing to the value of your position or your holdings.
It just gives you more shares at a lower price.
Some people that have a lot of stock will sell or at least sell half the position or or get back to where they were at whereas some uh they go higher simply because people like oh I can buy it now or I can buy more now so yeah I think it really depends on the company to a large degree so you think when a board of directors looks at a stock split that the huge majority of the time it’s affordability
It’s affordability.
And in many cases, Doug, as you know, it’s liquidity because it puts more shares out there, which can help just the overall trading balance of a stock.
And that often is a big reason as well.
Explain that for people a little, you know.
Take that and expound on it.
OK, well, let’s say the float of your company is five million.
OK, and that’s the shares that are tradable out in not stock that’s held at the company for employees or anything like that, but just the public float.
Well, if that becomes 10 million, there’s at half the price, let’s say it’s ten dollars and they do it two for one.
It goes to five.
But you have more shares out there.
which in many cases, liquidity can help a stock because stocks that trade low volume or don’t have a lot of liquidity are often targets for short sellers.
That’s true.
So pick one company that has a stock that you would split right now.
Well, we’ve written about this at 24-7 Wall Street extensively, and that’s NVIDIA.
Because, you know, trading way up there, it’s only split once.
And that was, I think, 2019 or back then.
And they did a four or five for one then.
And I think that’s probably real likely, but they’ll have to wait until, if our guys are correct, they’re going to wait until the summer until the meeting happens.
the board meetings and then they can approve it.
And maybe they announced the split in late June or early July, but they, they likely will split it because again, it’s not affordable for most people, despite the fact that it traded at $10 for about seven years, but that’s water under the bridge.
Any other companies that you’d look at and say, you know, that might be a candidate.
It’s stock has gotten rich to me.
Rich is really, two, $300 or higher, because at that point, you know, an average investor, you don’t want to buy one share, you know, somebody’s going to buy 10 shares and something.
Is there any other company you look at and say, yeah, I think Broadcom, which is symbol AVGO trading up around 1300.
Last time I looked, I think that’s a big candidate for a split.
And I don’t think it’s out of the question that Amazon could split as well.
Yeah, that makes, from a price standpoint, that makes sense.
Well, look, if the market keeps going higher and some of these AI-driven stocks, you know, some of these things will have tripled over the course of two years.
Yeah.
In some cases, more.
So we’ll come back in a month or two and see if there are any other candidates for this because the more frothy things, Ket, the more likely it is companies look at things like liquidity.
They look at the capacity for short selling.
All of a sudden, those things become important to boards of directors.
And it isn’t just, I want people to be able to afford the stock.
So let’s come back to this in a couple of months and see how things stand and whether anybody has split their stock or might.
Okay.
We’ll look back at this and who knows, maybe the Chipotle split will have taken place by then.
Good.
Take care of yourself.
Okay.
Same to you, Doug.
Good to talk to you.