Stock Split Watch: Is AMD the Next Step?

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

But more than 24 years have passed since AMD’s last 2-for-1 stock split on August 22, 2000. The day before this split was implemented, the stock closed at $68.88 per share. The split saw the price drop to $34.13 and has since risen about 250%.

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AMD hasn’t hinted at another stock split, but it could make sense now that the stock is trading around $120. Many other major chip manufacturers – including Nvidia And Broadcom — also recently split their shares. So should investors expect AMD to finally split its shares again in the near future?

Image source: Getty Images.

What a stock split does and doesn’t do

Stock splits often get a lot of attention, but don’t actually make a stock cheaper. They simply reduce the trading price of a security by breaking it into smaller pieces. It’s like selling a quarter of a pizza for $5 instead of the whole pie for $20. A stock split does not change a stock’s price-to-earnings ratio or other important fundamentals because you are only comparing a smaller portion of the company to the underlying financials.

Stock splits were more important when retail investors could only purchase whole shares. But most major brokers now allow their investors to buy fractional shares of shares with commission-free trading, so it’s fairly easy to invest in higher-priced stocks with the funds you have available.

Still, stock splits continue to cause a stir in the markets because they appear to make high-priced stocks more affordable. Some retail investors may prefer to purchase stocks in round lots (100 shares), which are easier to track than odd lots (with fewer than 100 shares). Stock splits also make options trading more affordable because each options contract is tied to 100 shares of the underlying security. For example, a single options contract on AMD priced at $120 is tied to $12,000 worth of shares – but halving the share price to $60 would reduce this minimum commitment to $6,000.

Stock splits can also provide companies with more flexibility in how their stock-based compensation plans pay out. But unless you’re an active options trader or employee of a company, stock splits probably won’t matter all that much in the long run.

What investors should focus on instead

Instead of wondering whether AMD will attract near-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. But over the last decade, the company has been able to increase its market share Intel in the CPU market by developing more energy-efficient chips and outsourcing production Taiwan semiconductor manufacturing.

Intel, which makes most of its own chips, has repeatedly struggled with delays, chip shortages and technical errors. AMD also kept pace with Nvidia in the GPU market, releasing powerful data center GPUs for AI-focused servers. As AMD’s core businesses grew, the company developed more and more accelerating processing units (APUs), which combine CPUs and GPUs on a single chip. 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 gaming console markets cooled. But sales rose again in the second half of the year as the PC market recovered and the macroeconomic 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 declining sales of gaming and embedded chips.

For 2024, analysts expect AMD’s revenue and adjusted earnings per share to grow 13% and 26%, respectively, as the company maintains this momentum. For 2025, they expect revenue and adjusted earnings per share to increase 27% and 54%, respectively. Much of that growth is likely to come from its data center chips, which generated nearly half of its revenue last quarter.

Those are impressive growth rates for a stock that trades at just 24 times expected earnings. Nvidia, which is growing faster than AMD by selling more AI-focused 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 balanced play with the long-term expansion of the semiconductor market. It should also continue to benefit from Intel’s ongoing problems and market share losses. Even though AMD probably won’t split its shares anytime 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 stocks 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 a disclosure policy.