On Monday, investors will observe what seems like a substantial drop in Broadcom’s (NASDAQ: AVGO) share price. This apparent decline is due to the company executing a 10-for-1 stock split after the market closed on July 12. This means each share has been divided into ten smaller shares. It’s akin to slicing a pizza into ten pieces – the pieces are smaller, but the total amount of pizza remains the same.
Understanding Broadcom’s Stock-Split History
Broadcom’s stock-split history is complex, reflecting the company’s evolution and mergers over the years. Broadcom Corporation, founded in 1991, went public in April 1998 with the ticker “BRCM.” Shortly thereafter, the company conducted several stock splits:
- February 18, 1999: A 2-for-1 stock split.
- February 14, 2000: Another 2-for-1 stock split.
- February 22, 2006: A 3-for-2 stock split.
In 2016, Avago Technologies acquired Broadcom, retaining the ticker “AVGO” but adopting the Broadcom name. Up until this recent 10-for-1 split, the post-merger Broadcom (formerly Avago) had not conducted any stock splits.
Historical Performance After Splits
Broadcom’s historical performance following these splits has been varied. After the first 2-for-1 split in February 1999, the stock experienced modest gains initially, followed by a significant surge due to the dot-com boom. This led to another 2-for-1 split in February 2000. Post-split, the stock saw some gains but eventually declined as the dot-com bubble burst. Similarly, the 3-for-2 split in February 2006 saw the stock rise briefly before falling, ending the year down nearly 30%.
Broader Trends in Stock Splits
Beyond Broadcom’s specific history, broader market analysis provides some optimism. Bank of America’s Research Investment Committee has analyzed stock splits dating back to 1980, finding that stocks typically rise by an average of 25.4% in the 12 months following a split announcement. For comparison, the S&P 500 has risen by an average of 11.9% during the same periods. Broadcom’s stock has already risen approximately 17% since its split announcement on June 12, 2024, indicating potential for further gains.
However, it’s important to consider more recent data. Since 2010, stocks that have undergone splits have seen lower average gains of 18.3% in the 12 months following the split announcement. This suggests that while there is potential for growth, it may not be as robust as in previous decades.
Focus on Long-Term Growth Drivers
Investors should look beyond the immediate effects of the stock split and focus on Broadcom’s long-term growth prospects. The company’s acquisition of VMware has already significantly boosted its revenue. Additionally, there is increasing demand for Broadcom’s artificial intelligence (AI) accelerators. These factors are likely to continue driving revenue and earnings higher.
Strategic Acquisitions and Product Demand
Broadcom’s strategic acquisition of VMware is a significant driver of its growth. The acquisition has expanded Broadcom’s product portfolio and market reach, contributing to revenue increases. Furthermore, the rising demand for AI accelerators, which are crucial in the development and deployment of AI technologies, positions Broadcom well in a rapidly growing market.
Investment Considerations
Before making investment decisions, it’s crucial to consider both the broader market trends and the specific growth drivers for Broadcom. Despite not being among the top ten stock picks by the Motley Fool Stock Advisor team, Broadcom’s strong fundamentals and strategic acquisitions suggest a positive outlook. Historical data on stock splits offers a mixed but generally positive perspective, indicating potential for continued gains following the split.
Conclusion
The apparent decline in Broadcom’s share price on Monday is merely the result of a 10-for-1 stock split. While the historical performance of the company’s stock following previous splits has been mixed, broader market trends indicate potential for positive gains. Investors should focus on Broadcom’s robust growth drivers, including its strategic acquisitions and increasing demand for AI products, to inform their long-term investment decisions. The stock split, while noteworthy, is just one piece of the puzzle in evaluating Broadcom’s overall potential.