Tesla (TSLA  ) has gained 18%, since announcing the stock would undergo a 5:1 split. The split will go into effect on August 31. It follows Apple (AAPL  ) which announced a 7:1 split after its earnings report.

The buying frenzy following the news is certainly puzzling. It's important to note that a stock split doesn't change the value of the company, in the same way, that cutting a pizza into 16 slices vs 8 doesn't mean there's more pizza. Some are saying that the stock split will make it more affordable for retail traders but now most brokerages offer fractional trading. Instead, the most rational explanation is that we have bubble-like behavior in certain stocks, and traders aren't being rational. Another explanation is that there was modest buying on the news, but the buying intensified since there's a large short position in the stock.

In its statement, the company said the split is to make "stock ownership more accessible to employees and investors." It's certainly possible that a lower share price could increase demand but a high share price hasn't hurt stalwarts like Amazon (AMZN  ) or Google (GOOG  ).

Stock Price Impact

Tesla is the poster child of this bull market. In the same way that Cisco (CSCO  ) was the leader of the 2000 bull market. By any traditional valuation metric, its stock price is wildly inflated. However, the company has a leading position in multiple industries that look poised to become trillion-dollar+ markets - electric cars; batteries; and autonomous driving.

If it can maintain its lead and these markets continue growing like projected, then it's quite possible that traders and investors' optimism in the company will be justified. However, the company is already worth more than every car company. And, it's the 16th most valuable company on the U.S. stock market currently.

Its stock has had a banner year this year as it's up 287% year-to-date and 638% over the past 12 months. One looming catalyst for the stock could be former vice-president Joe Biden's plan to invest $2 trillion over the next four years into green energy. It would be particularly helpful for Tesla as it contains subsidies and tax credits for electric cars. money to build charging stations. and a cash for clunkers program which would incentivize the purchase of electric cars. All of these measures lower the cost of Tesla's cars and theoretically increase demand.

In terms of recent stock price action, many of the leading stocks, since March, have been consolidating over the past month. For example, Tesla has been trading between $1,400 and $1,800. This recent news took the stock from the bottom of the range to the top. Bears are interpreting this as a catalyst to sell given that nothing fundamental has changed about the stock, and there's a low-risk stop, while bulls see this as the catalyst for the stock to break out of the sideways pattern.