Why Tesla's Stock Split Could Be a Bigger Deal Than Amazon's

Amazon (AMZN -3.62%) is bigger than Tesla (TSLA -2.28%) in nearly every way. Market cap, revenue, profits, number of employees — you name it, and Amazon outsizes Tesla.

But there’s at least one way that Tesla just might come out on top versus the e-commerce and cloud hosting giant. Both companies decided to conduct stock splits this year. Here’s why Tesla’s stock split could be a bigger deal than Amazon’s.

Market timing

Amazon’s 20-for-1 stock split took 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&P 500 had recently flirted with bear market territory. Amazon’s shares at the time were down 22%.

Anyone hoping that the stock split would light a fire beneath Amazon stock was sorely disappointed. In the days after the split, Amazon’s share price fell instead of moving higher.

It’s a much different scenario for Tesla on the cusp of its 3-for-1 stock split on Aug. 24. Some observers believe that the Nasdaq bear market is over even with a pullback in the past few days. The S&P 500 is clearly above the bear market threshold. Some are even cautiously optimistic that a new bull market could either be starting or will soon do so.

Tesla stock is already picking up 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’s abundantly clear that Tesla’s timing is better than Amazon’s.

Investors are more likely to buy stocks when the overall market is climbing. There’s a real possibility, therefore, that Tesla’s stock split will provide a bigger catalyst than Amazon’s stock split did.

Wall Street optimism

Analysts also appear to be more optimistic about Tesla’s prospects. Canaccord Genuity‘s George Gianarikas recently raised his 12-month price target on the stock to $881 from $815. There are also fewer sell ratings from analysts for Tesla in August than there have been in previous months. 

This improved Wall Street sentiment could cause investors to be more excited about Tesla’s stock split. Amazon didn’t benefit from similar enthusiasm back in June.

A boost from Uncle Sam

Tesla’s stock split is also coming on the heels of the passage of the Inflation Reduction Act. This legislation attempts to address a wide range of issues. The most important one for Tesla is climate change.

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

But this tax credit cap will no longer be in place effective Jan. 1, 2023. Tesla’s vehicles will 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. This knowledge could draw more buyers following Tesla’s stock split on Wednesday than there would have been without the passage of the Inflation Reduction Act.

What really matters

Of course, neither Amazon’s nor Tesla’s stock splits matter very much over the long term. Stock splits can sometimes attract smaller investors, but they don’t change companies’ underlying business prospects.

My view is that Amazon should still top Tesla over the long run. While both companies face increased competition, Amazon appears to have a stronger moat than Tesla does. Amazon also has more avenues for delivering growth with its e-commerce and cloud businesses plus opportunities in healthcare, self-driving cars, and more. 

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

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

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