Microsoft: The Return of the Stock Split?

Microsoft, the renowned tech giant, is no stranger to stock splits. Between the late 1980s and the early 2000s, the company split its stock nine times. However, things have remained quiet on that front since then. Nowadays, Microsoft's stock trades at over $400 per share, largely due to growth in the cloud and artificial intelligence sectors. This trend could continue long-term, raising the question of whether another stock split is timely. A stock split means a company divides its shares to increase the number of shares outstanding. For example, a stock trading at $100 would be split into five shares priced at $20 each in a 5-to-1 split. However, the overall value of the investment remains the same. Stock splits are often conducted to increase liquidity. A rising stock price makes it difficult for investors to purchase large quantities without substantial capital. Furthermore, employees who receive stock-based compensation might be sitting on significant gains and could be hesitant to sell at high amounts. A higher number of shares and a lower stock price make it easier for investors and employees to better manage their purchases or sales. Microsoft has split its stock multiple times in the past, which was attributed to the stock's outstanding performance. From 1986 to 2000, Microsoft achieved nearly a 60,000% gain, but the dot-com crash caused the stock to plummet, and it took 17 years to reclaim the price level of 2000. With the launch of the Azure cloud platform in 2010, Microsoft entered a new era. Since then, the stock price has increased by 1,400%, with Azure being the largest and fastest-growing business segment. Microsoft's partnership with leading AI developer OpenAI could channel the AI computing workload through Azure in the coming years. Recent quarterly figures for fiscal year 2024 exceeded Wall Street expectations, driven by strong earnings in the cloud and gaming sectors. Analysts forecast an annual growth in earnings per share of 16% over the next three to five years. Nonetheless, investors should remember that a stock split does not change a stock's fundamental valuation. For long-term investors, Microsoft's blend of quality and growth potential could justify the current price, although market fluctuations might offer more attractive buying opportunities. One consideration is the warning from The Motley Fool Stock Advisor's analyst team, which does not currently rank Microsoft among the top ten stocks for investors.