Stock Split Watch: Will Microsoft Be Next?

Tech giant Microsoft (MSFT -3.27%) has been around for a long time, so it’s no stranger to stock splits. The company split its stock nine times from the late 1980s to the early 2000s. But since then? Nothing. Microsoft’s stock is currently trading at more than $400 a share. The rise of the cloud and artificial intelligence (AI) has pushed the stock to new highs, and that could continue over the long term.

Perhaps it’s time for the board to consider a stock split.

What does this mean for investors? Will a stock split make Microsoft a buy?

Here’s what you need to know.

What do stock splits mean to you?

The media loves to make a big deal out of stock splits. But are they as big a deal as they seem?

First, what is a stock split? A stock split is when a company splits its stock to increase the number of shares outstanding. Let’s say one share of a company is trading at $100. If management were to split the stock 5-for-1, that single share would become five shares trading at $20 each.

Notice that the value of your investment hasn’t changed. One share at $100 or five at $20 equals the same amount. It is very important.

A stock split divides everything, so each share represents less of the company’s revenue, earnings, and equity. So, while a stock split creates a lower share price, it’s an illusion. The fundamental valuation of the company doesn’t change.

So why split stocks at all? In most cases, it’s about liquidity. As the stock price rises, it becomes harder for investors to accumulate stock without having a lot of money. Employees who received stock compensation may have significant profits and may not want to sell their stock at a high rate. A larger number of shares and a lower share price make it easier for investors and employees to control how much they buy or sell at once.

Why a Stock Split Makes Sense for Microsoft

You might notice that Microsoft split several times between the late 1980s and the early 2000s. This was due to the extraordinary performance of the stock; Microsoft gained almost 60,000% from 1986 to 2000, just before the Dot-Com crash. Microsoft’s stock fell sharply during the crash and 17 years to reach the 2000 price. That’s why Microsoft has only split once since 2000.

MSFT data by YCharts

Microsoft launched its Azure cloud platform in early 2010, ushering in a new era for the company. Since then, Microsoft’s stock has surged 1,400%, and the cloud is now the company’s largest and fastest-growing business unit. The new generation of employees who have been with the company for years are likely sitting on big stock gains.

Azure is already the world’s second leading cloud platform. Microsoft’s partnership with leading AI developer OpenAI is poised to drive AI compute workloads through Azure as companies adopt AI in the coming years.

Is Microsoft worth buying?

Microsoft recently reported fiscal 2024 fourth-quarter results that beat Wall Street expectations, driven by solid momentum in its cloud and gaming businesses. Microsoft shares are currently trading at 32 times estimated 2025 earnings. Analysts expect earnings per share to grow 16% year-over-year over the next three to five years.

Since stock splits don’t fundamentally change the stock, investors should never make investment decisions based solely on stock splits. A price-to-earnings ratio of twice the company’s earnings growth percentage isn’t cheap, but Microsoft probably offers a unique combination of quality and growth potential that’s hard to replicate.

Long-term investors may be willing to pay a small premium to own shares now, although market volatility could easily create better buying opportunities.

Justin Pope has no position in any of the stocks mentioned. The Motley Fool has a position in and recommends Microsoft. The Motley Fool recommends the following options: long January 2026 $395 call options on Microsoft and short January 2026 $405 call options on Microsoft. The Motley Fool has a disclosure policy.