Stock-Split Watch: Is Microsoft Next?

At first glance, you might not think of Microsoft (NASDAQ: MSFT) as a candidate for a stock split. At approximately $400 per share, it is far below where stocks like Broadcom or Alphabet traded when they last split shares.

Nonetheless, Microsoft faces pressure in one key area that most of its peers do not. Investors should take a closer look at whether it should be added to the list of upcoming stock splits.

Image source: Getty Images.

Is Microsoft a stock-split candidate?

Microsoft could face pressure to split its stock because it is one of the 30 stocks making up the Dow Jones Industrial Average. That is significant because the Dow is a price-weighted index. In other words, the higher the stock's nominal price, the more influence it has over the index. That increases the likelihood it will split well before reaching a four-figure nominal price.

Moreover, the companies vying to join the DJIA often split their shares for a chance to gain the benefits of inclusion in the Dow 30. Admittedly, some stocks -- like Berkshire Hathaway, whose A shares top $750,000 each -- have not caved to such pressures, but those are the exceptions.

Also, those who have followed the Dow for years might recall Apple's last stock split, a 4-for-1 split in August 2020. In that month, Apple stock had traded between $431 per share and $524 per share, not far above today's nominal price for Microsoft.

Additionally, Microsoft is in the midst of an AI boom. S&P Global, the company that effectively controls the Dow, projected a 40% compound annual growth rate for AI between 2024 and 2029. Additionally, many analysts believe Microsoft will outperform the market in 2026, which makes it even more likely its stock price will become an issue for the index at some point.

Still, a split may not come immediately. Despite its price, Microsoft is the third most expensive of the Dow 30 stocks.

The most expensive stock, Goldman Sachs, now tops $900 per share, more than twice Microsoft's price. At around $780 per share, Caterpillar is not far behind. The pressure to split is probably going to fall on these stocks before Microsoft.

Will Microsoft stock split soon?

Microsoft investors should be on the lookout for a Microsoft stock split, but should not expect one in the near term.

Indeed, Microsoft stock is nearing Apple's pre-split price from 2020. However, the fact that Goldman Sachs and Caterpillar trade at much higher nominal prices could mean that the index's administrators have become less quick to encourage share splitting among Dow components.

Until the Dow's two more expensive components split their shares, stock splits will likely not be an issue for Microsoft.

Will Healy has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Alphabet, Apple, Berkshire Hathaway, Caterpillar, Goldman Sachs Group, Microsoft, and S&P Global. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.