Broadcom AVGO announced a 10-for-1 stock split along with its second-quarter earnings on Wednesday. That means investors will receive nine additional shares of the semiconductor firm for each one they own.
“Broadcom’s stock split won’t affect our fundamental valuation on the company, but it makes it more easily accessible to smaller investors,” says Morningstar equity analyst William Kerwin, who raised his fair value estimate of the company’s stock to $1,550 per share following its strong earnings report. After the split, that estimate will be adjusted to $155 per share.
Broadcom has not split its shares since it was acquired by Avago in 2016. Shares of the company are up 31% this year and 82% over the past 12 months as investor enthusiasm for artificial intelligence has propelled tech stocks.
“AI growth and the firm’s acquisition of VMware have rapidly appreciated the stock price, leading to the announced 10-for-1 split,” Kerwin explains. “While before $1,000 couldn’t even buy one share of Broadcom, post-split it could buy several.”
Date for Broadcom’s Stock Split
Broadcom said in a press release that investors will receive their additional shares after the stock market closes on July 12. Shares will trade on a post-split basis when the market opens on July 15.
What Does Broadcom’s Stock Split Mean?
While stock splits change the number of shares in circulation, they do not change a company’s underlying fundamentals.
Morningstar’s fair value estimate for Broadcom stock is currently $1,550 per share, which will be adjusted to $155 after the split. Broadcom’s wide economic moat rating and Medium Uncertainty Rating will not be affected. The stock’s 3-star rating, which indicates Morningstar assesses it as fairly valued, will also not change.
Why Do Companies Split Their Stock?
When a company splits its stock, each share gets divided into multiple new shares. While this increases the number of outstanding shares, it does not change the company’s overall value. Firms tend to do this when their stock price has risen to an amount that might make it difficult for individual investors to purchase shares.
Having a larger number of cheaper shares to attract more buyers can help improve liquidity, and lower prices can have the psychological impact of making shares more attractive to investors, even though the company’s underlying value hasn’t changed.
Other Recent Stock Splits
Broadcom’s move follows another high-profile stock split. AI giant Nvidia NVDA also split shares on a 10-for-1 basis earlier this month. Walmart WMT enacted a three-for-one split in February, while Alphabet GOOGL/GOOG, Tesla TSLA, and Amazon AMZN split shares in 2022.
