SpaceX Stock-Split Watch: Here's When It Should Happen

Space Exploration Technologies (NASDAQ: SPCX) claims to be targeting the biggest growth opportunity of any company in history.

"We believe we have identified the largest actionable total addressable market in human history," the company boasted in its IPO prospectus. "We estimate that our quantifiable TAM is $28.5 trillion."

While the company is already valued at roughly $2 trillion, that growth runway gives the space stock plenty of room to run over the long term.

SpaceX shares are already in the triple digits. Stock splits disproportionately occur at higher stock prices. If SpaceX can execute on all, or even most, of its long-term growth opportunities, there's potential for shares to eventually rise above $1,000. Indeed, one Wall Street analyst already has an $800 price target for the stock.

According to Western & Southern Financial Group, "A stock priced at $1,000 per share may seem less attainable than one priced at $100 per share, even though fractional investing has reduced this barrier." The firm adds that "[l]ower-priced shares may attract a broader group of investors, particularly retail investors with limited capital available for individual stock purchases."

Stock splits can also help with liquidity. "Liquidity refers to how easily shares can be bought and sold," Western & Southern Financial Group explains. "Lower share prices often lead to increased trading activity because more investors can participate in the market."

All of these factors will be in play if SpaceX shares continue to rise in value. But there's actually one additional catalyst that could force a stock split sooner rather than later.

SpaceX could conduct a stock split for this reason

Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB) is famous for never conducting a stock split -- at least for its Class A shares. Warren Buffett believes that the friction cost of purchasing a stock priced well above $10,000 attracted more long-term, serious investors while reducing short-term trading.

In 1996, however, Berkshire wanted to prevent third parties from offering fractional exposure to Berkshire's Class A shares while charging those investors a fee. In response, Berkshire created Class B shares at a more accessible price point. Then in 2010, Berkshire's Class B shares underwent a 50-to-1 stock split. Why? So the company could acquire railroad operator Burlington Northern Santa Fe. The deal was funded in part by granting Burlington shareholders Berkshire stock, and the stock split allowed the company to better match the stock issuance to the value each individual shareholder should receive.

Image source: Getty Images.

This is exactly why I expect a SpaceX stock split at some point. Already, the company completed its $60 billion Cursor acquisition as an all-stock deal. SpaceX remains unprofitable, and must dedicate every dollar possible to growth to compete in what has become an AI race. In short, future acquisitions will likely be paid for in shares, not cash.

Like Berkshire, SpaceX may eventually be forced to conduct a stock split not to make its shares appear cheaper, but to facilitate an acquisition. AI-related acquisitions are on the rise, and SpaceX is already a heavyweight participant. Continuing that participation will likely force a stock split at some point.

Importantly, Berkshire's acquisition occurred in 1996 -- several years before fractional shares became popular. It may be possible, then, for SpaceX to avoid a stock split during a major acquisition. But there's one other set of data that can help us guess when the first SpaceX stock split will occur: Tesla's (NASDAQ: TSLA) stock split history.

Tesla, of course, is another trillion-dollar business with CEO Elon Musk at the helm. Musk has been financially involved in the company since 2004.

Tesla has conducted two stock splits in its history: a 5-for-1 split in 2020, and a 3-for-1 split in 2022. The prevailing stock price of Tesla when these splits were announced is telling. The 2020 split was announced when shares traded around $1,400. The 2022 split was announced closer to $900 per share. The first split was announced not long after Tesla's stock price surpassed $1,000 for the first time. The second followed another stock price surge, right as shares once again approach the $1,000 mark.

In short, Tesla has historically avoided stock splits, even for decades at a time. But when shares approach or surpass $1,000, a stock split has typically been triggered.

When might SpaceX shares reach $1,000? It could be a while. Shares currently trade 85% below that threshold. And the average price target for shares is only around $230. It will likely take years for the company to reach a four-digit stock price, if it ever gets there.

So while a maneuver isn't likely anytime soon, a stock-based acquisition or a four-digit stock price are the two long-term catalysts most likely to trigger a stock split.

Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Tesla. The Motley Fool has a disclosure policy.