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Why Tesla’s Stock Split Could Be Bigger Than Amazon’s | The Motley Fool

Amazon (AMZN 0.43%) is taller than You’re here (TSLA 1.96%) in almost every way. Market cap, revenue, profit, number of employees – you name it, and Amazon overtakes Tesla.

But there is at least one way for Tesla to stand out against the e-commerce and cloud hosting giant. Both companies have decided to do stock splits this year. Here’s why Tesla’s stock split could be bigger than Amazon’s.

Market timing

Amazon’s 20-for-1 stock split went into effect on June 6. In retrospect, the timing of this split wasn’t very good at all. The Nasdaq Composite Index was firmly in a bear market in June. The S&P500 had recently flirted with bear market territory. Amazon shares at the time were down 22%.

Anyone who hoped the stock split would ignite a fire under Amazon stock was deeply disappointed. In the days following the split, Amazon’s stock price fell rather than rose.

It’s a much different scenario for Tesla heading into its 3-for-1 stock split on Aug. 24. Some observers believe the Nasdaq bear market is over even with a pullback in recent days. The S&P 500 is clearly above the bear market threshold. Some are even cautiously optimistic that a new bull market could or will start soon.

Tesla stock is already gaining momentum. Over the past three months, the company’s shares have jumped more than 30%.

Neither Amazon nor Tesla could have known exactly how the stock market would perform when they announced their respective stock splits. However, it is quite clear that Tesla’s timing is better than Amazon’s.

Investors are more likely to buy stocks when the overall market is rising. So there is a real possibility that the Tesla stock split will provide a bigger catalyst than the Amazon stock split.

Wall Street Optimism

Analysts also seem more optimistic about Tesla’s outlook. Canaccord Genuity‘s George Gianarikas recently raised his 12-month price target for the stock to $881 from $815. There are also fewer analyst sell notes for Tesla in August than in previous months.

This improvement in Wall Street sentiment could lead investors to be more excited about Tesla’s stock split. Amazon did not enjoy similar enthusiasm in June.

A helping hand from Uncle Sam

Tesla’s stock split also comes on the heels of the passage of the Cut Inflation Act. This legislation tries to solve a wide range of problems. Most important to Tesla is climate change.

One of the provisions of the bill renews a $7,500 tax credit for Americans to purchase electric vehicles (EVs). Tesla’s vehicles had not been eligible for this tax credit because the company has sold more than 200,000 electric vehicles.

But this tax credit cap will no longer be in place as of January 1, 2023. Tesla vehicles will once again be eligible for the $7,500 credit. This could potentially boost the company’s sales next year.

Many investors are no doubt anticipating this catalyst. That knowledge could attract more buyers after Tesla’s stock split on Wednesday than there would have been had it not been for the Cut Inflation Act.

What really matters

Of course, neither Amazon nor Tesla stock splits matter much in the long run. Stock splits can sometimes attract small investors, but they don’t change the companies’ underlying business outlook.

My view is that Amazon should always overtake Tesla in the long run. As both companies face increased competition, Amazon appears to have a stronger moat than Tesla. Amazon also has more room for growth with its e-commerce and cloud businesses, as well as opportunities in healthcare, self-driving cars, and more.

Of course, Tesla’s stock split could be bigger than Amazon’s. But I think Amazon as a whole will continue to be bigger than Tesla throughout this decade and beyond.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Keith Speights holds positions at Amazon. The Motley Fool holds positions and recommends Amazon and Tesla. The Motley Fool has a disclosure policy.



Why Tesla’s Stock Split Could Be Bigger Than Amazon’s | The Motley Fool

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