Not every reaction is instantaneous. Referees in football sometimes take a while to make a call after a play ends. Iron exposed to oxygen causes rust, but only slowly.
Changes can also affect stocks well down the road. There's a case to be made that we're seeing such a delayed reaction occur before our eyes with the stocks of Amazon (AMZN 0.27%), Google parent Alphabet (GOOG 0.60%) (GOOGL 0.71%), and Tesla (TSLA 3.29%). Are last year's stock splits for these three giants paying off now?
Explosive returns
All three stocks have delivered explosive returns so far in 2023. Alphabet ranks as the least spectacular performer with a gain of "only" a little over 40%.
In one sense, this shouldn't be overly surprising. Alphabet didn't plunge nearly as much as Amazon and Tesla did last year.
Amazon stock has soared nearly 60% year to date. Tesla has been, by far, the biggest winner of the group, with a jaw-dropping return of more than 135%.
There's one common denominator behind the impressive performance of all three stocks -- investors' excitement about artificial intelligence (AI). Amazon Web Services and Google Cloud should benefit tremendously as organizations develop AI apps in the cloud. Some investors, notably including Ark Invest founder Cathie Wood, view Tesla as one of the best AI stocks on the market.
Of course, there are also other factors that help explain why Amazon, Alphabet, and Tesla stocks have taken off this year. Amazon looked historically cheap in the early part of 2023. Alphabet beat Wall Street's first-quarter revenue and earnings estimates. Tesla reported record deliveries for Q2.
Planting the seeds of success
One other common denominator just might have helped plant the seeds of the success enjoyed by each of these stocks so far in 2023. All three companies conducted stock splits last year.
Amazon conducted a 20-for-1 stock split in June 2022. Alphabet wasn't far behind with its own 20-for-1 stock split in July. The following month, Tesla split its stock 3-for-1.
Sometimes, stock splits result in an immediate big boost. That didn't happen for Amazon, Alphabet, or Tesla. Instead, the share prices for all three companies fell after their respective stock splits.
The problem was that the overall market environment proved too difficult to overcome. With the Federal Reserve aggressively raising interest rates, investors simply weren't interested in taking a chance on growth stocks.
But there's a much different dynamic at work in 2023. The Fed's rate increases have moderated. At long last, inflation appears to be cooling off somewhat.
The stock market has regained its allure. And more retail investors can afford to buy these three stocks than they could when Amazon's and Alphabet's share prices were above $2,000 and Tesla's share price wasn't too far away from $1,000.
No, the stock splits aren't the main reason Amazon, Alphabet, and Tesla are now flying high. However, it's quite possible that the stellar returns we've seen this year wouldn't have been as lofty without the stock splits.
Can the momentum continue?
There's no doubt in my mind that the momentum for these stocks can continue well into the future. But I do have some trepidation over whether it will continue.
It isn't unusual for stocks that deliver the kinds of gains that Amazon, Alphabet, and Tesla have generated to pull back somewhat. The valuations of these stocks aren't nearly as attractive as they were coming into 2023.
On the other hand, I think the long-term prospects for all three should be good. Ultimately, it isn't their stock splits or any other temporary moves that matter. Over time, the stocks' performance will reflect the strength of the underlying businesses. That could be the best delayed reaction of all for these highflying stocks.
