Quantum computing stocks such as D-Wave Quantum (QBTS 5.32%) have been all the rage this year, with many seeing their stock prices soar. Investors are viewing the sector in a similar light to the early days of artificial intelligence. If quantum computing companies are able to commercialize quantum computers that can ideally process much more complex calculations than computers today, you may one day find them in every home and office in America and all over the world.

Stocks can embark on stock splits for all sorts of different reasons. They can happen to successful stocks and underperforming stocks. Is D-Wave Quantum next?

Image source: Getty Images.

What is a stock split?

Before looking at whether D-Wave could be due for a stock split, it’s important for investors to understand what stock splits are and why companies may embark on them.

Stock splits are simply a way for a company to lower its share price and increase the number of outstanding shares, or vice versa through a reverse stock split. Stock splits and reverse stock splits do not change a company’s market capitalization and, therefore, will not change an investor’s equity position if they held shares before one occurs.

Let’s do a quick example with one of the world’s largest publicly traded companies: Tesla. Let’s say you own 100 shares of Tesla, which currently trades slightly under $313 per share, making your total equity position slightly under $31,300. If Tesla were to conduct a three-for-one stock split, you would take the 100 shares and multiply by three, resulting in 300 shares.

Then, to calculate the new share price, you would take the equity position ($31,300) and divide by 300, which equals $104.33 per share. Notice that your number of Tesla shares tripled, while the share price was divided by three. But you still have the same total equity value, and the market cap is the same, so there was no dilution.

A company might conduct a stock split or a reverse split for several reasons. A frequent example occurs when a company’s stock price drops too low. The Nasdaq Composite and New York Stock Exchange require companies that trade on their exchanges to maintain at least a $1 share price for at least 30 business days. If a company fails to meet this requirement, it may eventually be delisted. A reverse stock split can help resolve this conundrum.

Companies that are extremely successful and see their stock prices rise into the hundreds or even the thousands will also use stock splits to bring down their share price and make the stock more attainable for investors. Even though investors can now buy fractional shares, they may be less likely to purchase shares with such a high price tag. A stock split lowers the share price and increases the share count, potentially boosting liquidity.

Is D-Wave Next?

While basic computers use bits to process data, which are the smallest units of digital information, quantum computers use qubits to process data much faster and perform much more complex calculations in a much more efficient manner than computers and humans. If executed correctly, many believe that quantum computers will be able to make huge advancements in nearly every sector, including science, medicine, and finance, to name a few.

D-Wave is one company that has made good progress. The company’s latest model, released earlier this year, features 4,400 qubits and robust qubit coherence, which allows qubits to stay in the quantum state for longer and solve calculations faster and with more accuracy. In fact, D-Wave’s latest quantum technology has achieved a 75% reduction in noise, which can throw off qubits. The less noise, the higher the accuracy.

Due to this success and other signs of general progress in the quantum computing industry, D-Wave has seen its stock soar by over 1,281% in the last year, so investors have crushed it. The stock trades at $16.79 per share and has a market cap of $5.25 billion. Furthermore, D-Wave has a high public float and can be purchased on most common brokerages, such as Robinhood.

D-Wave also recently completed a $400 million at-the-market equity offering, so I don’t see any indication that the company will conduct a reverse stock split anytime soon. D-Wave is in compliance with the New York Stock Exchange’s listing requirements and has a liquid share base.

Stock splits have an interesting narrative. During bull markets, investors can’t get enough of stock-split stocks as prices rise in anticipation for upcoming splits. This conflicts with the actual reality on the ground.

In actuality, stock splits have no impact on a company’s financial performance. After a forward stock split (where a company’s shares outstanding grow) or a reverse stock split (where shares outstanding contract), a company’s total shares outstanding will change, but it is still the same old business as the day before.

This doesn’t stop investors from getting enamored with stock-split stocks during a bull market, though.

Now, with the market in a correction, investors have fallen out of love with stock-split stocks. Does that make them a potential buying opportunity for your portfolio? Here is one stock-split stock to buy and one to avoid in the month of March.

Chipotle: Trading at its cheapest valuation in years

Chipotle (CMG 2.67%) split its stock 50-to-1 in 2024, bringing its share price down to a more manageable buying price for individual investors. As of this writing, its stock trades at a price of $50 and is in a 27% drawdown. Investors are concerned about a slowdown in restaurant spending at the moment, which is causing the sector to struggle to start 2025.

The underlying business looks just fine. In 2024, Chipotle’s revenue grew 14.6% to $11.6 billion. This was driven by opening new restaurants and increasing same-store sales of 7.3% compared to 2023. Operating margin was 16.9% in the year, up from 15.8% in 2023.

Add everything together, and Chipotle’s earnings per share (EPS) grew 24.7% year-over-year in 2024.

With plenty of room to grow its store count in North America — and eventually globally — I believe Chipotle can keep up this strong EPS growth for years to come.

After the stock’s drawdown, Chipotle trades at a price-to-earnings ratio (P/E) of 45. While this doesn’t look dirt cheap, it should come down quickly with how fast Chipotle is growing its EPS and is at its lowest level in the last five years, excluding the March 2020 stock market panic.

Investors who buy Chipotle stock today should do just fine holding over the long haul.

Sirius XM’s losing business model

SIRI data by YCharts

Forward stock splits are a sign a company’s business is succeeding. The price of your stock rises generally when the business does well. Reverse stock splits mean the opposite, which is why Sirius XM Holdings (SIRI 3.85%) recently implemented a reverse split. A leader in satellite radio, Sirius XM is struggling to pivot its business to modern digital audio streaming.

In 2024, revenue fell 4% to $6.6 billion. Free cash flow of around $1 billion is at its lowest level in 10 years. Its acquisition of Pandora Music has gone nowhere, and it is investing in expensive podcast licensing deals.

Despite prior years of success, Sirius XM is getting lapped by modern competitors like Spotify and YouTube, which are gaining millions of new users every year. Sirius XM’s ranks of users are moving in the wrong direction.

Dangerously, Sirius XM carries more than $10 billion of long-term debt on its balance sheet. If its free cash flow keeps moving in the wrong direction, this company could be headed for more trouble in the next few years, even with the stock already down 71% from all-time highs. Avoid buying Sirius XM stock for your portfolio in March.

Nvidia (NVDA -4.05%) stock splits have become a clear sign of the stock’s strength in the world of artificial intelligence (AI). Its AI accelerators have arguably made it the most essential AI stock. Its transformational power over the chip industry allowed it to replace the former industry leader Intel as one of the 30 stocks making up the Dow Jones Industrial Average (^DJI -1.69%) in November 2024.

But does that mean it has grown to the point that investors should expect it to become the next major stock split? Let’s take a closer look.

The recent stock split history of Nvidia

Nvidia stock benefited from early successes in its history. The company launched an IPO in 1999 at the height of the dot-com boom. Even as that bull market ran its course, Nvidia stock grew steadily, prompting four stock splits between 2000 and 2007.

However, Nvidia peaked in 2007 and experienced a massive decline during the 2008 financial crisis. Even though the stock began its recovery in early 2009, it would take until 2016 before Nvidia returned to its 2007 highs.

2016 was when Nvidia released the GeForce 10 graphics processing unit (GPU), and this GPU dramatically improved the quality of virtual reality rendering. This improvement sparked a rally in Nvidia stock, making it a leader in data center chips and, eventually, in AI accelerators.

Massive stock gains prompted a 4-for-1 stock split in July 2021. After the 2022 bear market ran its course, another boom in the stock started in October 2022 and accelerated in the spring of 2023, when investors discovered that Nvidia’s AI accelerators powered the latest version of ChatGPT. That run led to a 10-for-1 stock split in June 2024.

In the time between the 2007 and 2024 stock splits, Nvidia rose by almost 14,000%!

NVDA data by YCharts.

Is another split forthcoming?

However, amid those gains, the prospects for another stock split in the near term look surprisingly dim.

For one, Nvidia has returned a comparatively lackluster performance since the June 2024 stock split. Since that time, the stock has risen by about 15%. While that closely reflects the returns of the S&P 500 (^GSPC -1.71%), it may disappoint investors accustomed to Nvidia’s massive growth over the last 10 years.

Additionally, Nvidia is unlikely to face pressure to split its stock at this time from S&P Dow Jones Indices, the committee run by S&P Global. The Dow is a price-weighted average, meaning a stock’s nominal price determines how much it influences the index.

Still, only seven of the 30 stocks on the index sell for a lower nominal share price than Nvidia. That means that Nvidia is currently one of the less influential stocks on the index and, thus, is unlikely to face pressure from S&P Dow Jones to initiate a split. Likewise, splitting the stock now would diminish its influence over the Dow, making it unlikely to initiate a split independently.

Moreover, one often-ignored factor makes a split for any reason highly improbable — the market cap. Its market cap makes it the second most valuable publicly traded stock, next to Apple.

This means that if Nvidia waited for another 10-fold move higher and initiated a 10-for-1 split, it would have to achieve a market cap of $34 trillion. With no stock having reached a $4 trillion market cap as of the time of this writing, a $34 trillion market cap is unlikely any time in the near future.

Do not expect an Nvidia stock split

Considering the state of Nvidia stock, investors should not expect it to become the next stock split, nor should they expect a split in the foreseeable future.

Admittedly, Nvidia stock has delivered eye-popping returns since the release of the GeForce 10, which changed the face of the company. Nonetheless, Nvidia has already addressed its nominal stock price by two splits that made one share in 2016 the equivalent of 40 shares today.

Consequently, Nvidia is now one of the lower-priced stocks of the Dow 30, and its massive size makes another split highly unlikely. Thus, future stock splits should not be an issue for Nvidia for a long time to come, if ever.