The past few years have been big for stock splits, with giants from Nvidia to Chipotle Mexican Grill completing such operations. Companies usually launch these after major gains have driven the price to high levels -- a stock split brings down the per-share price, making it easier for many more investors to get in on the investing opportunity.
Though a stock split, in and of itself, isn't a reason to buy a particular player, investors still like tracking these operations -- and considering which company may be next to make such a move. Where to begin? A good starting point is with stocks that have performed well and are trading near a record high. These players also may have delivered strong revenue growth in recent times and offer bright long-term prospects.
And all of this makes Oracle (ORCL 2.60%) a potential stock split candidate. Could a stock split be the tech giant's next move? Let's find out.
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How a stock split works
First, though, a few more details about how a stock split unfolds. In a split, a company offers more shares to current holders -- this lowers the value of each individual share without changing the total value of an investor's position or the market value of the company. The ratio of the split determines the final value of your shares, so, for example, in a 10-for-one stock split, your one share valued at $1,000 would become 10 shares valued at $100 each post-split.
Now, let's consider the likelihood of an Oracle stock split. The company has done several in the past -- 10 to be exact -- suggesting it's amenable to the idea of such an operation. But all of Oracle's stock splits happened prior to 2001, showing such moves haven't been a part of the company's strategy in recent years.
Today, Oracle stock is trading for around $300, and that's about $30 lower than a record high reached a few weeks ago following the company's latest earnings report. To reach this level, the stock price has climbed almost 400% over the past five years.
NYSE: ORCL
Key Data Points
Oracle stock compared to rivals
All of this shows growth in the stock price, but the shares haven't necessarily reached a level that would push away investors. For example, the level of $1,000 per share often represents a psychological barrier, meaning some investors see stocks at that price or higher as expensive even if valuation tells a different story. Today, Oracle stock is very far from $1,000, and trades at a level that's comparable to others in the cloud space.
Meanwhile, Oracle today has reached a key turning point. The company is seeing revenue soar amid demand for cloud capacity from AI customers. The recent quarter illustrates this and suggests we may be in the very early stages of this story. In the quarter, Oracle's cloud infrastructure revenue advanced 55% to $3.3 billion -- and the company predicted that it will increase 77% to $18 billion this year, and then progress to $144 billion in the coming four years.
This is supported by surging demand for capacity, something that could be in great need for many years to come. It's important to remember that after AI models are trained, they still need compute for inferencing, or the thinking process that leads to them answering complex questions. All of this bodes well for companies offering this access to compute.
Oracle's CEOs
At the same time, Oracle recently announced that longtime chief Safra Catz was shifting into the role of executive vice chair of the board -- and that Clay Magouyrk and Mike Sicilia, who have held executive AI roles at Oracle, would become co-CEOs.
With all of this happening right now, will Oracle soon announce a stock split? I don't think that will be the company's next move -- for two main reasons. First, the stock hasn't reached levels that beg for such an operation. And second, Oracle right now is keenly focused on serving demand for AI capacity and turning this into earnings growth -- the new CEOs may prioritize this over organizing a stock split.
That said, it makes sense to keep Oracle on your stock split watch list. The stock has what it takes to explode higher amid AI growth in the quarters to come -- and that means the company eventually could decide to launch a split and bring that stock price back down to Earth.
