Stock Splits and Market Performance: The Case of the Magnificent Seven
Since 2020, the stock market has seen a flurry of activity among the so-called "Magnificent Seven" stocks—a term used to describe some of the largest and most influential tech companies. To increase share liquidity and accessibility to retail investors, five of these tech giants executed stock splits. However, the results tell a compelling story about the relationship between stock splits and market performance.
The Splits: Who Did It and What Happened?
Among the Magnificent Seven, Apple, Amazon, Alphabet (parent company of Google), Nvidia, and Tesla have all undergone stock splits since 2020. In contrast, Meta Platforms and Microsoft have either never split or haven’t executed a split in decades. The following table illustrates the performance of each stock post-split:
| Stock | Date of Split | % Performance (Stock) | % Performance (S&P 500) |
|---|---|---|---|
| Apple | 8/31/2020 | 99.6% | 105.6% |
| Amazon | 6/6/2022 | 66.4% | 70.1% |
| Alphabet | 7/18/2022 | 176.5% | 82.7% |
| Meta Platforms | NA | NA | NA |
| Microsoft | NA | NA | NA |
| Nvidia | 6/10/2024 | 48.1% | 86.6% |
| Tesla | 8/31/2020 | 135.5% | 105.6% |
| Tesla (2022) | 8/25/2022 | 32.1% | 66.4% |
From this data, only Alphabet and Tesla’s initial 2020 splits produced notable outperformance, with Alphabet’s stock skyrocketing by 176.5%—more than double the S&P 500’s 82.7%.
Deciphering Stock Splits: More Than Just a Nominal Change
Stock splits have often been heralded as bullish catalysts. They are believed to make stocks more affordable and enticing to retail investors. However, the underlying reality is that a stock split does not fundamentally change the business’s value; it merely divides the existing pie into thinner slices. Investors are simply left holding more shares at lower individual prices.
The enthusiasm following a split can lead to temporary surges in stock prices, but these gains often prove fleeting. Hence, it is crucial for investors to look beyond stock splits and focus on a company’s intrinsic value and future growth potential driven by innovation and market execution.
Insights from Historical Performance
The post-split performance of five Magnificent Seven stocks paints a sobering picture. Only Alphabet and Tesla’s 2020 stock splits managed to beat the S&P 500, while the others—Apple, Amazon, and Nvidia—saw their stock performance trail behind the market.
Apple, despite a near doubling in value post-split, still lags the S&P 500 by six percentage points. The tech giant is now grappling with matured iPhone sales cycles, though new revenue streams from services and emerging AI technologies like Apple Intelligence could rejuvenate its growth narrative.
The Current Landscape for Future Growth
Amazon’s performance since its split in 2022 has been lackluster, returning 66.4% against the S&P’s 70.1%. However, the company’s prowess in burgeoning markets like AI and e-commerce could provide the necessary fuel for recovery.
As for Nvidia, its upcoming split in 2024 is accompanied by a return of only 48.1% compared to the broader market’s 86.6%. Still, its unique market positioning as an AI hardware leader has the potential to reward patient investors.
Tesla’s 2022 split has so far returned just 32.1%, significantly trailing the S&P’s 66.4%. Nevertheless, Tesla’s credibility in electric vehicles and automation continues to keep investors optimistic about future gains given advancements in full self-driving and energy storage capabilities.
Fundamental Innovations vs. Stock Splits
When evaluating performance and considering future investments, it’s evident that a stock split in and of itself should never be a standalone reason to buy. The success of a stock ultimately lies in the company’s innovative capabilities, competitive positioning in the market, and strategic execution in areas like AI, cloud computing, and automation technologies—not simply the allure of a lower share price.
As Wall Street becomes increasingly enamored with AI technologies, the focus is shifting toward identifying companies with genuine growth potential. An analyst who identified Nvidia’s potential back in 2010 has recently pinpointed ten new AI companies poised for substantial growth, encompassing ventures in equipment markets and technologies that could reshape industries.
Final Thoughts
In this complex and rapidly evolving market landscape, investors must navigate beyond stock splits to assess the real drivers behind a company’s performance. As the cases of Alphabet and Tesla illustrate, strong fundamentals combined with positive market sentiment can indeed lead to lasting outperformance. However, the historical data indicates that stock splits alone do not guarantee success—the narrative must also be grounded in tangible growth and innovation.
