Back in the dot-com boom era, stock splits became commonplace in response to soaring share prices. Amid the current artificial intelligence (AI) boom, a similar pattern could be developing. Already, several AI companies have split their shares, and more splits could be on the way among the others that are trading at lofty prices.
Investors should understand that stock splits don't fundamentally change the value of a stock or the underlying business, but they usually come in the wake of significant share price appreciation, and signal management's confidence that the stock can keep going higher.
There's also evidence, according to a Bank of America study, that stocks outperform in the year after they split. While there's no guarantee that any given stock-split stock will beat the S&P 500, it does offer historical evidence that the average stock-split stock does. On that note, these three AI stock-split stocks look like long-term winners.
1. Nvidia
Nvidia (NASDAQ: NVDA) needs little introduction at this point. The AI chip superstar has paced the sector, gaining roughly 700% since the start of 2023. Nvidia's most recent stock split -- a 10-for-1 split -- took effect after the market closed on June 7, and the stock is down since then.
Nvidia continues to show a lot of upside potential even as its market cap is now hovering just shy of $3 trillion. The company has a huge lead in data center GPUs, the cutting-edge chips needed to power AI models like ChatGPT, and it seems likely that its lead will only get wider following the launch of chips built on its new Blackwell platform in the fourth quarter.
Additionally, the company is on pace to keep growing rapidly; revenue rose 122% year over year in its fiscal 2025 second quarter to $30 billion.
While some investors are concerned about the possibility of an AI sector bubble, there's still plenty of evidence that demand for Nvidia's components is soaring. The latest anecdote to support that theory: Reportedly, Oracle founder Larry Ellison and Tesla CEO Elon Musk recently took Nvidia CEO Jensen Huang to dinner so that they could beg him in person to sell their companies more GPUs.
Given its entrenched competitive advantages, surging demand for its wares, and a long development path ahead in generative AI, Nvidia still looks like a smart buy.
2. Super Micro Computer
Super Micro Computer (NASDAQ: SMCI) is another breakout AI stock. Like Nvidia, its revenue has soared, up 144% in its most recent quarter to $5.31 billion. However, the company's gross margin declined, weighing on profits, and the market bid the stock downward.
Later, Supermicro shares plunged after a short-seller attacked the company, and management said its annual 10-K would be delayed. CEO Charles Liang responded to the short-seller's charges, saying that business remains strong. Importantly, he also said that despite the filing delay, the company doesn't anticipate any material changes to its financial results from what it previously reported.
Supermicro is known for manufacturing high-density servers that perform especially well in AI applications, and it's dominating the market for liquid-cooled AI servers, giving it a competitive advantage.
A great reason to buy the stock now is Supermicro's valuation. It currently trades at a price-to-earnings ratio of just 22, which looks like a dramatic undervaluation, assuming neither of those two issues is material.
Supermicro's 10-for-1 stock split is scheduled for Oct. 1. That event could be a catalyst for the stock's rebound.
3. Broadcom
Broadcom's (NASDAQ: AVGO) business is diversified across cybersecurity, virtualization software, semiconductors, and networking infrastructure. It doesn't have the same level of exposure to AI that Nvidia and Supermicro do, but it's seeing growing demand due to the new technology thanks in part to its switches, networking solutions, and custom accelerators for AI data centers.
CEO Hock Tan said he expected the company's revenue from AI to reach $12 billion this year -- roughly a quarter of its total sales.
The tech giant also has a long track record of success in growing its business both organically and through acquisitions, in which it typically cuts costs to drive profits higher. In its most recent fiscal quarter, the company reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $8.2 billion. That amounted to 63% of its total revenue, a ratio that's nearly as good as Nvidia's.
Broadcom executed a 10-for-1 stock split on July 12, and its stock has edged down since then along with the rest of the AI sector. Currently, Broadcom trades at a price-to-earnings ratio of 37, a reasonable level for an AI leader whose profitability should improve as it completes the integration of its massive VMware acquisition.
All three of these AI stocks have delivered strong results and look poised to continue doing so. With strong competitive advantages, huge growth opportunities, and affordable valuations, they all look like smart long-term buys.
Should you invest $1,000 in Nvidia right now?
Before you buy stock in Nvidia, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $694,743!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of September 16, 2024
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Jeremy Bowman has positions in Bank of America and Broadcom. The Motley Fool has positions in and recommends Bank of America, Nvidia, Oracle, and Tesla. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
3 Artificial Intelligence (AI) Stock-Split Stocks That Could Help Set You Up for Life was originally published by The Motley Fool