News

ASML (NASDAQ: ASML) often refers to itself as "the most important tech company you've never heard of." Still, that moniker is likely becoming less accurate as more investors become aware of the company's importance in the production of equipment that creates the world's most advanced semiconductors.

That realization likely played a role in taking its stock price around $1,000 per share, making it the 20th most expensive stock trading on U.S. exchanges today. Such a nominal price leads investors to ask if ASML will finally approve a stock split this year.

The state of ASML and its stock

Admittedly, the prospects of a stock split this year or any other time amount to speculation. The company has not telegraphed any intentions to split its stock.

Additionally, ASML has not approved any splits in years. After three stock splits during the dot-com bubble, its last action of this type was an 8-for-9 reverse stock split in 2007.

Nonetheless, the company has changed since that time. Since 2007, it has attained a leadership in producing extreme ultraviolet lithography (EUV) machines. That has given the company a seemingly insurmountable competitive advantage. As a result, equipment from competitors such as Lam Research and Applied Materials can only compete in less advanced parts of the semiconductor industry.

Hence, fabrication plants owned by companies like Taiwan Semiconductor and Samsung need ASML's EUV machines to produce the world's most advanced semiconductors, which power cutting-edge technologies such as artificial intelligence (AI).

This makes ASML irreplaceable in the semiconductor supply chain. Moreover, manufacturers have received tens of billions in subsidies to produce such chips outside of Taiwan, the location for about two-thirds of the world's third-party production capacity. Thus, ASML will probably play a critical role in this move.

Why ASML might eventually split its stock

Indeed, ASML's technical lead likely makes the Netherlands-based equipment maker a buy, regardless of whether the company approves a stock split. Also, stock splits do not change valuations or the size of ownership positions in a direct sense. One share at $1,000 per share is worth the same as 10 shares at $100 per share.

However, investors have some reasons to believe a split will occur and possibly boost interest in ASML. One reason is the company's aforementioned history of stock splits and the changes within the company over the last 17 years. Since the reverse split, the stock has risen more than 28-fold, giving it the highest nominal prices in its history.

Additionally, a lower nominal share price gives smaller investors more reason to pay attention to ASML and buy shares. Yes, these investors can purchase fractional shares, but the fact that fractional shares may involve added fees (if they are available at all) may reduce the appeal of such a strategy.

Furthermore, a share split is a bullish psychological sign. It telegraphs to investors that the company expects the stock price to rise. Also, with the demand for AI chips exploding and efforts to build more fabs worldwide, ASML shares should remain on a growth trajectory for years to come. Hence, a near-term split may not be the last time the company takes such an action.

ASML and stock splits

ASML has not indicated it will split its shares, but it has good reasons to do so. Its role as the leading equipment manufacturer and the rising demand for that equipment should mean a secular bull market for the semiconductor stock for years to come.

Admittedly, the company's nominal share price does not affect that trend. Nonetheless, a likely psychological boost and heightened interest from small investors would give investors more reasons to consider such a move.

Should you invest $1,000 in ASML right now?

Before you buy stock in ASML, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and ASML wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.

*Stock Advisor returns as of March 21, 2024

Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Applied Materials, Lam Research, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.