ASML Stock Split Analysis: Will It Happen Soon?

Artificial Intelligence Dominance and ASML's Crucial Role

Artificial intelligence (AI) companies dominate the top of the stock market. Netherlands-based ASML Holding (ASML 1.13%) might not be as recognizable as some of the bigger names, but it plays a pivotal role by providing the lithography equipment necessary for semiconductor manufacturing. It's a cornerstone of the chip-making infrastructure.

One potential concern for budget-conscious investors is the share price. Currently trading around $780 (as of September 5th), acquiring even a small number of shares requires a significant investment. A stock split could potentially lower the price, making ASML stock more accessible to a wider range of investors. Let's examine the likelihood of a stock split occurring in the near future.

Understanding Stock Splits

There are two primary types of stock splits: forward stock splits and reverse stock splits. Both are mechanisms companies use to adjust their share prices and the number of outstanding shares, albeit in opposite directions.

In a forward stock split, a company increases the number of its outstanding shares by dividing each existing share. For example, in a 5-for-1 forward split, the company would increase its total number of shares fivefold. If you held 10 shares before the split, you would then hold 50 shares. The overall value of your holdings remains unchanged. While there's no fundamental impact on the company's valuation or shareholder wealth, a stock split can often generate excitement and attract new investors by making the stock appear more affordable.

A reverse stock split, on the other hand, decreases the number of outstanding shares while increasing the share price proportionally. Companies typically implement reverse stock splits when their share price is in danger of falling below the minimum listing requirements of a stock exchange. This is generally seen as a negative sign. Given ASML's current, relatively high share price, a reverse stock split is highly unlikely.

ASML's Stock Split History

Over its three-decade history as a publicly traded company, ASML has executed five stock splits. The details are as follows:

• May 12, 1997: 2-for-1 forward split
• May 8, 1998: 2-for-1 forward split
• April 17, 2000: 3-for-1 forward split
• Oct. 1, 2007: 8-for-9 reverse split
• Nov. 29, 2012: 77-for-100 reverse split

It's important to note that ASML's reverse stock splits were not indicative of financial distress or the threat of delisting. Rather, they were part of a strategy to distribute cash to shareholders and consolidate outstanding shares.

While ASML was relatively active with stock splits in its earlier years, it has been over 25 years since the last forward split. The share price is now significantly higher than it was in 2000. Its split-adjusted price was $109 the day before the 3-for-1 split, and then $36.30 on the next trading day.

Will ASML Split its Stock in the Future?

Looking solely at ASML's share price, it might seem like a strong candidate for a stock split. However, one crucial element typically associated with companies that split their stocks is absent: consistent upward price momentum. Since reaching an all-time high of $1,086 on July 10, 2024, ASML has experienced a 28% decline in its value.

Stock splits often coincide with periods of strong positive momentum and investor enthusiasm. Lowering the share price can attract new investors who are interested in the company's prospects but are hesitant to invest a large sum in a single share. Currently, ASML's performance and market sentiment are not particularly "hot." Management has adopted a cautious approach to earnings expectations due to potential tariff impacts (although a federal court has deemed most tariffs illegal, pending appeal). Furthermore, export restrictions limit the types of machines ASML can sell to China.

Despite these challenges, ASML remains a strategically important technology company that is fundamental to the continued development of AI. Its monopoly on extreme ultraviolet (EUV) lithography machines, which are essential for manufacturing advanced AI semiconductors, further solidifies its position. If you're considering investments in top AI stocks, ASML is worth exploring, but waiting for a stock split is not advisable. The company is more likely to consider a split if its stock price experiences a significant surge. If that were to happen, earlier investment would be advantageous.