Stock Split Watch: Is AMD Next?

Advanced micro-devices (NASDAQ: AMD) has split its stock six times since its initial public offering in 1972. If you had invested $10,000 in its initial public offering (IPO) at $15 a share. per share, your 66 shares would have been split into 18,666 shares – worth about $2.24 million today.

But it’s been more than 24 years since AMD’s last 2-for-1 stock split on Aug. 22, 2000. The day before it completed the split, the stock closed at $68.88 a share. stock. The split reduced the price to $34.13, and it has risen about 250% since then.

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AMD hasn’t hinted at another stock split, but it might make sense now that it’s trading at around $120 a share. stock. Many others major chip manufacturers — inclusive Nvidia and Broadcom — also recently split their shares. So should investors expect AMD to finally split its stock again in the near future?

Image source: Getty Images.

What a stock split does and doesn’t do

Stock splits often attract a lot of attention, but they don’t actually make a stock cheaper. All they do is reduce the trading price of a security by dividing it into smaller slices. It’s like selling a quarter of a pizza for $5 instead of the whole pie for $20. A share split does not change a share’s value price-to-earnings ratio or other important fundamentals because you are simply comparing a smaller part of the company to its underlying financials.

Stock splits were more significant when retail investors could only buy whole shares. However, most major brokerages now allow their investors to buy fractional shares with commission-free trades, so it is quite easy to invest in more expensive stocks with the funds you have available at the time.

Nevertheless, stock splits still generate buzz in the markets because they seem to make high-flying stocks more affordable. Some retail investors may prefer to buy round lots (100 shares) of stocks, which are easier to track than odd lots (fewer than 100 shares). Stock splits also make option trading more affordable, as each option contract is tied to 100 shares of the underlying security. For example, a single option contract on AMD at $120 is pegged to $12,000 in shares — but a halving of the stock price to $60 would reduce that minimum commitment to $6,000.

Stock splits can also give companies more flexibility when paying out their stock-based compensation plans. But unless you’re an active options trader or a corporate employee, stock splits probably won’t matter too much in the long run.

What investors should focus on instead

Rather than wondering whether AMD will attract short-term attention with a stock split, investors should focus on its recent growth cycle and long-term catalysts. AMD is still an underdog in the x86 CPU market and the discrete GPU market. However, over the past decade, it grew its market share relative to Intel in the CPU market by developing more power-efficient chips and outsourcing its production to Taiwan Semiconductor Manufacturing.

Intel, which makes most of its own chips, has repeatedly struggled with delays, chip shortages and technological glitches. AMD also kept pace with Nvidia in the GPU market, launching powerful data center GPUs for AI-oriented servers. As AMD’s core businesses grew, it developed more accelerated processing units (APUs), which fuse CPUs and GPUs onto a single die. It sold these chips to laptop makers and game console makers Sony and Microsoft.

AMD’s revenue fell in the first half of 2023 as the PC and game console markets cooled. But in the second half of the year, its revenue picked up again as the PC market warmed up and the macro environment improved.

This recovery was driven by its Zen CPUs for PCs, its Epyc server CPUs and Instinct GPUs for AI servers. These growth engines offset its declining sales of games and embedded chips.

For 2024, analysts expect AMD’s revenue and adjusted EPS to grow 13% and 26%, respectively, as it maintains that momentum. For 2025, they expect its revenue and adjusted EPS to increase by 27% and 54%, respectively. Much of that growth should be driven by its data center chips, which generated nearly half of its revenue in the most recent quarter.

These are impressive growth rates for a share that trades at just 24 times forward earnings. Nvidia, which is growing faster than AMD by selling more AI-oriented data center GPUs, has a higher forward multiple of 31.

Is it the right time to buy AMD stock?

AMD doesn’t yet generate as much revenue from the AI ​​chip market as Nvidia, but it’s a well-balanced play on the secular expansion of the semiconductor market. It should also continue to benefit from Intel’s ongoing problems and loss of market share. So while AMD probably won’t be splitting its stock any time soon, I think it’s still a good buy at current prices.

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Leo Sun has no position in any of the shares mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, Microsoft, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft, short February 2025 $27 calls on Intel and short January 2026 $405 calls on Microsoft. The Motley Fool has one disclosure policy.