Chipmaking equipment manufacturer ASML Holding (ASML 5.43%) has split its stock five times so far, but it's been a while since the last time. The stock trades around $870 today, and it might be time to carve that $343 billion market cap into a larger number of slices.
Stock splits are simple accounting moves; they don't change the total value of the company, and they don't add value for existing shareholders.
A stock split can still be a sensible idea sometimes, though. The main benefit is that shares become more affordable after the split, and therefore more easily available for purchase by a wider base of potential investors. In particular, high-priced stocks are cumbersome for investors who can't buy fractional shares through their broker.
ASML's history of stock splits
ASML's stock has skyrocketed in recent years. Despite a sharp drop in 2022 and modest year-to-date returns in 2024, its share price more than quadrupled in five years.
As a result, the price moved from $212 to $872, with a temporary peak of $1,022 in July. Investors with a limited budget (and no access to fractional shares) might have to save up for a while to grab a single share.
ASML's last two splits were a bit unconventional, involving a modest 8-for-9 reverse split in 2007 and a complicated 77-for-100 reverse split with a cash component in 2012. Its last traditional split was 3-for-1 on April 17, 2000. If you had one ASML share just before that split action, you would have roughly 2.05 shares today. The stock traded at a split-adjusted $109 per share before the 2000 split and $36.30 the next day.
And the stock's total returns added up to 2,070% since that split:
ASML total return level, data by YCharts.
So the stock is soaring way above the levels that inspired its last regular split. The board of directors could very well announce a fresh split someday soon -- if they expect the stock price to keep rising.
ASML's current outlook supports an imminent split
After a sharp rise in sales in the artificial intelligence (AI) boom, ASML's revenue ticked lower in 2024. Its customers are taking a breather in expanding their chipmaking facilities due to a shaky economy and warehouses overstuffed with chip inventories.
Against this backdrop, ASML's stock has dropped 15% below its recent peak. Management expects the industry to do better in the second half as the inventory overstocking situation improves, and the global inflation surge seems to be fading. And the demand for ASML's high-end equipment should rise as the AI market continues to drive microchip sales.
The company is also shipping its latest and greatest High Numerical Aperture Extreme Ultraviolet (High-NA EUV) lithography system to leading clients Taiwan Semiconductor (TSM 4.37%) and Intel (INTC 5.41%). At $380 million per machine, these products should boost ASML's top-line revenue in the coming quarters.
NASDAQ: ASML
Key Data Points
Dividends and buybacks tell a different story
On the other hand, ASML isn't showing some of the classic signs of long-term management optimism. Its dividend payouts are not growing at the moment, and stock buybacks are trending lower. Rising dividends and buyback budgets typically signal high confidence in future business, so the modest cash infusions into these programs could be a bad sign.
To some degree, this less-than-enthusiastic cash management springs from geopolitical tensions. The Dutch-American company collects about half of its sales from the Chinese market, and both the Netherlands and the United States have imposed tariffs and trade restrictions on China.
At the same time, I'm looking at a pretty expensive stock here. Besides the high price and lofty market cap, ASML trades at nosebleed valuation ratios such as 48 times earnings and 109 times free cash flow.
That's not a deal-breaker for stock-split ideas, but the company should probably boost its financial foundation a bit before making that accounting adjustment. It just makes ASML look smart if the stock split is paired with soaring sales and richer profits, and that's not the story I see right now.
Why ASML might delay its next split
So ASML might not rush to announce a stock split, despite approaching $1,000 per share. Waiting until the Chinese tension dies down and the stalled customer demand comes back would make some sense.
With or without stock splits on the calendar, the company is a robust play on the semiconductor market and the AI boom. Its valuation ratios are spiking for short-lived reasons while long-term business prospects look strong. As long as those high-priced shares fit your investing budget, or you have the option to grab a fraction of a share instead, you should consider adding ASML's stock to your portfolio in this market dip.
