Will Alphabet Soar After Its Stock Split? This is what history shows

The days of Alphabet (GOOG 0.58%) (GOOGL 0.68%) stock trades over $2,000 are numbered. And the magic number is 21. That’s the number of days left until the tech giant’s 20-for-1 stock split on July 15.

Investors often look forward to stock splits because they think stocks could take off after the split. But will Alphabet soar after its next stock split? Here is what history shows.

Not enough to continue

Let’s first discuss the importance (or lack thereof) of stock splits. They do not change the activity of a company. They do not change the overall value of a business. However, lower stock prices may attract more retail investors to a stock. That’s the only real reason the Alphabet stock split matters.

With Alphabet’s stock price in the dumpster so far this year, the stock definitely needs a positive catalyst. Will the stock split due in a few weeks be exactly what investors want? History can sometimes be a guide.

Unfortunately, there isn’t much history when it comes to Alphabet stock splits. The company has only had one stock split since its IPO in 2004. On March 27, 2014, Alphabet (then known as Google) split its shares 2-for-1.

There was considerable controversy surrounding this stock split. Google didn’t just double its number of shares. Instead, the company has created an entirely separate class of shares – Class C Non-Voting Shares.

What happened after this unusual stock split? Not a lot. Google’s Class A and Class C shares rose about 2% over the next few days. However, the gains quickly evaporated. By the end of April 2014, both stocks had fallen at least 4%.

GOOGL data by YCharts

There were more ups and downs to come in 2014. However, it is doubtful whether the stock split had any impact on the moves. Google then ended the year down almost 5%.

Recent precedents

We really can’t learn much from the split of a stock in Alphabet’s history. But perhaps the recent precedents of other stock splits this year might help.

Amazon.co.uk (AMZN 3.20%) stands out as the most anticipated stock split in the last month or so. The leader in online shopping and cloud hosting completed a 20-for-1 stock split on June 6, 2022.

However, Amazon stock did not take off after its split. Instead, stocks fell. Why? Amazon’s stock split came at a time when the overall market was struggling. The company also faces challenges related to its supply chain and rising inflation.

AMZN Chart

AMZN data by YCharts

Another previous high flyer, DexCom (DXCM 5.16%), also recently conducted a 4-to-1 stock split. The healthcare stock saw an immediate rise. However, that was only temporary.

DXCM Chart

DXCM data by YCharts

Again, overall stock market weakness appears to be the main culprit holding DexCom back. The company’s business is doing well with the ongoing international launch of DexCom’s G7 continuous glucose monitoring device.

Three predictions

Based on these admittedly limited historical precedents, the safest prediction is that Alphabet stock will not soar following its stock split next month. There is, however, a big caveat with this prediction. If the overall stock market rebounds in a major way by then, Alphabet’s stock split could serve as a bigger catalyst than expected.

But here are two more predictions. The first is that most investors will quickly forget all of the 2022 stock splits that got a lot of attention, including Alphabet’s upcoming 20-to-1 split. The other prediction is that Alphabet will make solid gains over the next decade regardless of any stock splits.

In fact, Alphabet currently ranks among my top three most compelling growth stocks. I like the business moat of the company. I think it also has multiple growth drivers, including Google Cloud and self-driving car unit Waymo.

Maybe Alphabet’s stock price will never go above $2,000 again. However, I don’t expect the stock to stay near the $100 level for very long after the July stock split.

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