Super Micro's stock split is on deck - and it stands out in a not-so-good way

By Emily Bary

Super Micro shares begin trading Tuesday on a split-adjusted basis. The stock's drop between the announcement date and effective date could be the steepest in more than two years.

Super Micro Computer Inc.'s stock split next week could be unlike any in the S&P 500 this year.

That's because shares are down nearly 35% between when the server maker announced the split in August and Thursday's close. Ten companies in the S&P 500 SPX have announced and consummated stock splits so far in 2024, and just two of them were accompanied by declines in the corresponding stocks between the announcement date and effective date. And both of those declines were only fractional on a percentage basis.

Super Micro (SMCI) will conduct a 10-for-1 stock split on Monday afternoon before shares begin trading on that new basis Tuesday morning. If Super Micro's current stock performance roughly holds, you'd have to go back more than two years to find a similar example, according to Dow Jones Market Data and Birinyi Associates. The last company in the S&P 500 to see its value fall by at least a third between the announcement and effective dates was DexCom Inc. (DXCM), which conducted a split in May 2022.

Stock splits don't change the underlying value of shares, but stocks have been known to run up following announcements because of the potential for increased investor interest in lower-priced shares. While fractional trading has made it so people don't need to outlay $1,000 to invest in a $1,000 stock, some people psychologically prefer to own whole shares instead of partial ones. There are other perceived benefits of stock splits as well, including that they can make options trading more accessible.

Watch: Are stock splits making a comeback? Tech giants are leading the way.

Some companies that split their stocks had been staring at "expensive" prices for a while. One example is Chipotle Mexican Grill Inc. (CMG), which announced a massive, 50-for-1 stock split earlier this year and completed it in June when its shares were trading above $3,000.

But Super Micro was relatively new to having a high-priced stock, as shares traded below $100 as recently as April 2023. Super Micro's August stock-split announcement came when shares were trading north of $600. They closed Thursday around $400.

The stock has been dogged by a number of issues. For one, Super Micro announced the split alongside its fiscal fourth-quarter earnings, which showed steeping margin pressure and raised questions about the profit potential of artificial-intelligence servers in a competitive market.

The company also faces possible legal challenges, with the Wall Street Journal reporting Thursday that the Justice Department is conducting an early-stage probe of the company.

Additionally, short-seller Hindenburg Research flagged accounting concerns in a negative report about Super Micro that was put out last month. The company later said it would delay its annual filing while reviewing its accounting controls, though Super Micro didn't expect at the time that the review would lead to material changes to reported results.

Super Micro's stock split isn't the only technology one coming up next week. Lam Research Corp. (LRCX) is also due to consummate its long-awaited stock split after the close on Wednesday, and shares of the chip-equipment company are also down between the announcement date and Thursday's close. Lam disclosed the planned split on May 21, and shares are off about 12% since then.

BofA analysts did a review of stock splits earlier this year, noting that "historically, stock splits are bullish for companies that enact them," with 25% average gains a year out versus 12% gains for the broad market.

"But outperformance is no guarantee," the analysts wrote in the May report. "Stocks see negative returns about 30% of the time 12 months later."

See also: Will Nvidia spur a stock-split frenzy? Why companies have been waiting longer to split.

-Emily Bary

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09-27-24 0700ET

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