Advanced Micro Devices (NASDAQ: AMD) has split its stock six times since its IPO in 1972. If you had invested $10,000 in its initial public offering (IPO) at $15 a share, your 66 shares would have been split into 18,666 shares — which are worth about $2.24 million today.
But it’s been more than 24 years since AMD’s last 2-for-1 stock split on Aug. 22, 2000. On the day before it executed that split, its stock closed at $68.88 a share. The split reduced its price to $34.13, and it’s rallied roughly 250% since then.
Stock splits were more significant when retail investors could only purchase whole shares. But most major brokerages now allow their investors to buy fractional shares with commission-free trades, so it’s fairly easy to invest in higher-priced stocks with whatever funds you have available at the time.
Nevertheless, stock splits still generate buzz in the markets because they seemingly make high-flying stocks more affordable. Some retail investors might prefer to buy round lots (100 shares) of stocks which are easier to track than odd lots (with fewer than 100 shares). Stock splits also make options trading more affordable, since each options contract is tethered to 100 shares of the underlying security. For example, a single options contract on AMD at $120 is pinned to $12,000 in shares — but cutting its stock price in half to $60 would reduce that minimum commitment to $6,000.
Stock splits can also grant companies more flexibility when they pay out their stock-based compensation plans. But unless you’re an active options trader or a company employee, stock splits probably won’t matter too much in the long run.