Investing

Prediction: Microsoft (MSFT) Is About to Announce a Stock Split

Rich Duprey

Published: October 30, 2024 11:21 am

Last Updated: October 30, 2024 4:46 pm

They seemed to come in a rapid-fire wave, tech companies announcing they were splitting their stock. But even though it is the third-most valuable stock on the market and its stock trades north of $400 a share, tech giant Microsoft (NASDAQ:MSFT) was not amongst them.

With its stock up 15% so far in 2024 and earnings due after the market closes today, could this be when one of the leading artificial intelligence stocks declares its own stock split announcement?

24/7 Wall St. Insights:

• Tech companies in particular have been announcing stock splits in 2024, particularly those that have aligned themselves with artificial intelligence.
• Microsoft (MSFT) hasn’t split its shares in over 20 years, and with its stock trading above $400 a share, it may be next in line to surprise the market with an announcement.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

Divvying up the pie

Even though they do not impact its fundamentals, investors love when companies announce splits, viewing them as bullish indicators of future progress. As is well-known by most, stock splits are non-events for the underlying business of a company announcing one. A good company will likely maintain its upward trajectory after the split occurs, while poor ones will continue failing.

Yet the route each takes with stock splits is telling. Forward splits are almost exclusively the realm of businesses creating shareholder value. They reward shareholders with additional stock, but the price gets cut by a like percentage.

When Broadcom (NASDAQ:AVGO) split its shares 10-for-1, it gave investors nine more shares for every one they owned so they had 10 shares instead of one. Where its stock had been trading at $1,600 per share pre-split, it traded at $160 afterward. Nothing else about the chipmaker’s business changed.

Conversely, a reverse stock split does the opposite. It takes away shares from an investor, which artificially raises the stock price, a move generally done to maintain an exchange listing because its value has fallen through a specified threshold. That indicates a damaged business, a condition that will exist after the reverse split is completed.

A winning AI combination

While not all of the forward stock split announcements this year have been amongst AI stocks, some of the most prominent companies doing so have been. Broadcom and Nvidia (NASDAQ:NVDA) are just two of the AI-related tech stocks that have or will split their shares.

Microsoft, though, is arguably the one of the best companies directly profiting from AI the most. Having integrated the technology throughout its operations and into all of its products and services, Microsoft has shown what AI is capable of by fully embracing it. Its early entry into the space positions Microsoft as a key player among all big tech companies.

Particularly with the billions of dollars it has invested in OpenAI, the company behind ChatGPT, the generative AI chatbot that revolutionized artificial intelligence for many, Microsoft has emerged as a leading force. Across its Office 365 suite of products, but especially in its Azure cloud services business, AI will be what ignites future growth.

A strong record of returning value to shareholders

And Microsoft is due for a split. It hasn’t touched its shares in more than 20 years, but with the stock trading at $434 a share, it is out of reach of many small retail investors. A two-for-one or three-for-one stock split could make sense and bring the tech company’s shares down to a level more investors could afford. 

MSFT stock is up over 1,470% since the last time its shares split, though most of the gains have come in the last 10 years. Over that time, its dividend has also risen at an 11% compounded annual growth rate, growing from $0.97 per share to its current $3.32 per share payout. It recently announced a big 10% hike in the quarterly dividend to $0.83 per share.

In addition, the tech star is also buying back its stock, declaring a massive share repurchase plan valued at $60 billion. Microsoft has steadily reduced its share count for the past decade from when it had almost 8.4 billion shares outstanding. While a company doesn’t have to buy its stock under a repurchase plan, it promises to reduce Microsoft’s share count well below the 7.4 billion shares outstanding it ended last year with.

A stock split by MSFT would be a triple play for the tech stock that has shown it is quite willing to reward investors and return additional value to shareholders.