The biggest tech stocks appear to be getting cheaper—at least, they appear to be.
Tesla announced on March 28 that it will split its stock for the second time in two years. The decision follows similar plans by Amazon and Alphabet, the parent company of Google, to conduct 20-for-1 stock splits, lowering their respective share prices significantly. If approved, Amazon’s stock will fall from around $3300 to $165, while Alphabet’s stock will fall from around $2800 to $140.
Stock splits do not change the value of one’s stock holdings; rather, they multiply the number of shares and divide the share price. This is a marketing ploy designed to make a company’s stock more appealing to retail investors who are hesitant to buy fractional shares of stock—but research shows it works.
According to recent data from financial analysis firm Vanda Research, retail interest spikes when there is news of a stock split, a finding that has been confirmed by outside researchers. And Tesla, which is already one of the most popular retail stocks, is expected to see an increase in demand as a result of this news.
The study of stock splits
When Apple announced its stock would split 4-for-1 in July 2020, weekly retail purchases surged from around $150 million to just under $1 billion by the time the stock split in September. In the case of Google and Amazon’s recent split announcements, and Tesla’s August 2020 5-for-1 split, net purchases doubled in the weeks following the news.
“The recent announcement of a stock split will most certainly drive retail interest further,” said Lucas Mantle, data scientist at Vanda Research. The stock split news, along with possible increased appetite for so-called growth stocks, should lead to strong purchasing activity from retail investors in the coming weeks, he added.
Tesla is already a retail sensation.
Tesla is 39% owned by retail investors—much higher than many tech stocks like Facebook parent Meta (20%), Alphabet (20%), and Amazon (26%). And while it’s on par with Apple (40%), its retail ownership proportion pales in comparison with so-called meme stocks like GameStop (56%) and AMC Entertainment (65%).
On WallStreetBets, the Reddit community famous for popularizing meme stocks, Tesla ranks third among mentioned companies (only behind GameStop and AMC) since 2021, according to Vanda. In that same period, Tesla was the eighth-most purchased US stock daily, behind Apple, chipmakers AMD and Nvidia, and a few others.
Tesla’s popularity, elevated by CEO Elon Musk’s Twitter habit, has been strong throughout the retail trading boom of the last few years. Splitting its stock has helped before. As it tries to appeal to more and more retail investors, it should only help again.