Amazon (AMZN 0.56%) is bigger than Tesla (TSLA 1.31%) in almost every way. Market capitalization, revenues, profits, number of employees, you name it, and Amazon is ahead of Tesla.
But there is at least one way Tesla could come out on top, against the e-commerce and cloud giant. Both companies have decided to do a stock split this year. That’s why Tesla’s stock split could be a bigger deal than Amazon’s.
Market timing
Amazon’s 20-share, 1-share split went into effect June 6. In hindsight, this split was not a good one. The Nasdaq Composite Index was firmly in a bear market in June. The S&P 500 recently flirted with bear territory. Amazon stock was down 22% at the time.
Those who had hoped that the stock would split, igniting a fire under Amazon stock, were sorely disappointed. A few days after the split, Amazon’s stock price fell instead of moving up.
That’s a very different scenario for Tesla on the cusp of its Z to 1 share as of Aug. 24. Some observers believe the Nasdaq bear market has ended even with a pullback in the last 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 soon will be.
Tesla stock is already gaining momentum. The company’s stock has jumped more than 30% in the past three months. Neither Amazon nor Tesla could have known exactly how the stock market would work when they announced their respective stock split. Nevertheless, it’s clear that Tesla’s timing was better than Amazon’s.
Investors are more likely to buy stocks when the overall market is rising. Thus, there is a real possibility that the Tesla stock split will be a bigger catalyst than the Amazon stock split.Wall Street optimism
Analysts are also more optimistic about Tesla’s prospects. George Gianarikas of Canaccord Genuity recently raised his 12-month stock price to $881 from $815. In addition, Tesla’s sales ratings from analysts were down from previous months in August.
This improvement in sentiment on Wall Street could cause investors to get more excited about Tesla’s stock split. Amazon did not benefit from similar enthusiasm in June.
Impulse from Uncle Sam.
The Tesla stock split also comes after the passage of the Inflation Reduction Act. This legislation addresses a wide range of issues. The most important for Tesla is climate change.
One provision of the bill extends a $7,500 tax credit for Americans to buy electric vehicles (EVs). Tesla cars were not eligible for the tax credit because the company has sold more than 200,000 electric cars.
But that marginal tax credit will no longer be in effect as of January 1, 2023. Tesla cars will again be eligible for the $7500 credit. This could potentially boost the company’s sales next year.
Many investors are certainly looking forward to this catalyst. This knowledge could attract more buyers after Tesla’s stock split on Wednesday than it would have without the Inflation Reduction Act.
What really matters
Of course, neither Amazon nor Tesla are split in the long run. Stock splits can sometimes attract smaller investors, but they don’t change the companies’ basic business prospects.
I believe Amazon should still outperform Tesla in the long run. While 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 business plus opportunities in healthcare, unmanned cars and more.
Of course, Tesla’s stock split may be a bigger deal than Amazon’s. But I think Amazon as a whole will still mean more than Tesla during this decade and beyond.