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Many investors could be kicking themselves for not buying shares of Broadcom (NASDAQ: AVGO) before now. Since October 2022, the share price of the semiconductor and software company has nearly quadrupled. Broadcom stock is up over 50% so far this year.

And a potential catalyst is imminent. Here’s the top reason to buy Broadcom stock before its 10-for-1 stock split after the market close on July 12.

An expectations game

Broadcom announced plans for a 10-for-1 stock split in its June quarterly update. CFO Kirsten Spears said the move stemmed from the company’s desire “to make ownership of Broadcom stock more accessible to investors and employees.”

Spears’ statement lies at the heart of what I believe is the main reason to buy Broadcom stock before its stock split. The split could spur many investors to buy the stock at a more affordable price than the current share price of close to $1,740. If there’s enough trading activity, it would create buying pressure that pushes the share price higher.

The only reason to scramble to buy any stock within a matter of days is if you think you’ll miss out on a nice jump if you don’t buy it. In Broadcom’s case, no major development for the company is anticipated by July 12 other than the stock split.

Are there other reasons you might want to buy Broadcom stock by July 12? Sure. Federal Reserve Chairman Jerome Powell speaks before a House committee on July 10. The U.S. Bureau of Labor Statistics will release the inflation numbers for June on July 11. It’s possible that either or both events could lead investors to believe an interest rate cut is coming soon, which could cause many stocks including Broadcom to surge. However, I think the top reason to buy Broadcom stock is if you expect its stock split will provide a significant catalyst.

Should you expect a catalyst with Broadcom’s stock split?

Is it likely the stock split will provide such a catalyst? Maybe. Sometimes stocks do jump following a split, but other times they don’t.

The most thorough analysis I’ve found about how stocks perform when they split was performed by Bank of America. The financial services giant’s researchers found that stocks increased by an average of roughly 25% in the 12 months following the announcement of a stock split — more than twice the 12% average gain of the S&P 500 during the same period.

I think there are a couple of important things to note about this BofA study. First, the gain was measured beginning with when the stock split was announced. Second, the researchers didn’t only look at the short-term movements immediately following the stock split but instead examined how stocks performed over 12 months.

Broadcom stock has risen nearly 17% since the announcement of its stock split on June 12 as of the market close on July 8. It’s impossible to know how much of that gain should be attributed to the company’s Q2 update versus its planned stock split. Still, the stock could have more room to run (although not necessarily immediately) if it matches the historical long-term average performance for stocks after the announcement of a stock split.

A better strategy

In my view, there’s a better strategy for investors than rushing to quickly buy Broadcom stock in the hopes that its split causes shares to soar. Instead of focusing on the next few days, think about where Broadcom will be in the next five to 15 years.

Do you think the demand for the artificial intelligence (AI) accelerators Broadcom makes will be significantly higher in the future than it is now? Do you expect the company’s acquisition of VMware will pay off handsomely? Do you look for AI to spur a new wave of smartphone upgrades that boosts sales of Broadcom’s technology? My answer to all of these questions is “yes,” but some might disagree.

If you want to buy Broadcom stock, identify the top reasons why you’d want to own it over the long term. Doing so should help improve your chances of making money — whether or not you buy before the stock split on July 12.

Should you invest $1,000 in Broadcom right now?

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Keith Speights has positions in Bank of America. The Motley Fool has positions in and recommends Bank of America. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.

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