Stock splits have been in fashion in recent years in the technology sector as high-flying tech stocks have opted to go down this route in a bid to lower their share prices. Nvidia, Alphabet, Tesla, and Broadcom are some of the prominent names that have executed stock splits in recent years, believing that such a move would make their shares accessible to a wider pool of investors.
To be clear, a forward stock split (the most common type of split) doesn't alter the fundamentals and prospects of a company. This move simply increases the number of outstanding shares while reducing the price of each share. However, there is a theory that splits can lead to an increase in demand for a company's shares, which will lead to a share price increase.
This is one reason ASML (NASDAQ: ASML) may consider a split in 2025. Shares of the Dutch semiconductor equipment maker have underperformed the market over the past couple of years. They have gained just 22% in that span, while the broader PHLX Semiconductor Sector index has recorded tremendous gains of 94% during the same period.
The company is set to release its fourth-quarter 2024 results on Jan. 29. Will management announce a stock split on that date, and will it be a good idea to buy shares of ASML before that happens?
ASML has split its stock four times since going public in 1995. Three of them have been forward splits (the most common type of split). The company's last stock split came in 2007 when it executed an 8-for-9 reverse split to optimize its capital structure. A reverse split is the opposite of a forward split: It increases the share price while reducing the outstanding share count.
ASML's stock price has jumped more than 1,900% since its last split was announced on May 31, 2007. Each share now trades at around $764, suggesting that the time may be ripe for another stock split, which is why it won't be surprising to see management make that move when it announces its results later this month.
However, with many brokerages now allowing investors to buy fractional shares, it may be a good idea to initiate a long position in ASML irrespective of a split. Let's look at the reasons why.
The stock lost steam in the second half of 2024 following a solid start last year. Worries about restrictions on sales of the company's chipmaking equipment to China, along with a slower-than-expected recovery in semiconductor markets -- other than artificial intelligence (AI) -- that led to weaker-than-expected orders for its equipment in the third quarter of 2024 have weighed on the share price.