On public exchanges, companies are constantly seeking ways to increase the appeal of their shares to potential investors. Stock splits and reverse stock splits are two strategies these companies may employ; both adjust the share price and the number of shares available without affecting the company's total market value.
Though stock splits have no direct impact on a company's underlying performance, they tend to capture market attention and can signal intentions to investors, which explains the keen interest whenever such moves are announced. D-Wave Quantum ( QBTS 7.66%) belongs to the fast-evolving quantum computing industry and has experienced considerable volatility in its stock price over recent years. This has led investors to speculate about the possibility of a stock split in the near future.
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The most frequent motivations for a stock split
While it's not always possible to anticipate when a company will announce a stock split, there are several common motivations behind such decisions. Essentially, a stock split reduces the price per share and raises the number of shares in circulation. Importantly, stock splits do not impact the company’s overall market capitalization (share price times shares outstanding) or the equity held by each investor.
As an example, imagine an investor owns 50 shares of a stock valued at $30 each, totaling $1,500. If the company enacts a 3-for-1 stock split, the investor’s holdings increase to 150 shares, but each share’s value drops to $10, leaving the total investment unchanged at $1,500.
Stock splits are particularly useful for companies whose share prices have climbed steeply. When an individual share trades at several hundred or even thousands of dollars, company leadership may split the stock to make it feel more accessible to a broader range of investors and to increase trading activity.
Reverse stock splits, by contrast, push the share price higher while reducing the total number of shares available. Companies sometimes use these measures to align their stock price with that of industry peers or to address listing compliance on exchanges such as the New York Stock Exchange or Nasdaq. Both exchanges require stocks to remain above $1 per share for at least 30 straight trading days to avoid the risk of delisting. If company leaders are confident in a turnaround but need to buy time to meet these requirements, a reverse split can be a short-term solution.
Could D-Wave Quantum be considering a stock split?
Quantum computing represents a significant leap forward from traditional computers, which have already had a profound impact on society over the last thirty years. Traditional computers operate using bits, the most basic form of digital information, while quantum computers use qubits, enabling them to tackle far more complex challenges than standard computers can manage.
Quantum computers are capable of performing calculations at speeds and with efficiencies far beyond any classical computer—or even human capability—offering the potential to revolutionize sectors ranging from finance to chemistry. However, the technology is still being refined, and widespread commercial use is likely years away.
In May, D-Wave introduced its Advantage2 system, touting a 75% decrease in "noise" compared to older versions. Reduced noise leads to more precise quantum calculations. This new system also comes with a hybrid solver capable of handling 2 million variables and constraints, enabling businesses to "deploy large-scale, mission-critical applications in production."
Amid the enthusiasm for quantum computing, D-Wave’s stock price has surged over 1,600% during the past year. Shares recently closed at approximately $16, well above any compliance thresholds for the NYSE, and the price is not so high as to deter most investors. Additionally, with a substantial portion of shares publicly available, the stock maintains good liquidity. Therefore, the typical catalysts for a stock split are not present at this time.
It is also worth noting that D-Wave’s stock has exhibited pronounced volatility. Earlier in 2024, shares did at times fall below $1, leading to a non-compliance notice from the NYSE and prompting the company to consider a reverse split.
Currently, D-Wave holds a market capitalization of about $5.3 billion, yet it produces minimal revenue and continues to post significant losses. Should investor enthusiasm for AI and quantum technology wane or doubts arise about quantum computing’s future, a dramatic sell-off could occur. However, at present, these risks do not seem imminent, making any imminent stock split for D-Wave Quantum unlikely.
