Nvidia's stock split earlier this year was followed up by a period of strong valuation gains for the company, and the artificial intelligence (AI) leader is far from the first to benefit from post-split momentum.
While stock splits don't do anything to change the fundamentals of a business, there are reasons why investors like them. By breaking its share count down into a larger number of shares, a company makes its stock potentially more accessible and attractive to a wider range of investors. A stock split can also be a reflection that a business is performing well.
With Nvidia's stock split now in the rearview mirror, some investors may be looking for the next worthwhile split plays. If that's you, read on to see why two Motley Fool contributors think these companies should be on your radar. One has already announced an upcoming split, and the other could be on the verge of making this move.
This Nvidia customer is getting ready for a 10-for-1 split
Keith Noonan: Super Micro Computer (NASDAQ: SMCI) makes high-performance servers that include Nvidia's graphics processing units (GPUs) as central hardware components. Demand for the company's rack servers soared in conjunction with the deployment and training of artificial intelligence (AI) services.
In turn, explosive sales and earnings growth have helped to push the company's share price up 158% over the last year. Even after a recent post-earnings pullback, the company's stock is still priced above $600 per share.
On Aug. 6, Supermicro (as it's commonly known) published results for the fourth quarter of its last fiscal year, which ended June 30. While the company managed to increase sales 143% year over year and earnings 78% in the quarter, the profit for the period fell short of Wall Street's expectations due to weaker-than-expected gross margins.
In conjunction with the quarterly results that it published in August, Supermicro announced that it will carry out a 10-for-1 stock split on Oct. 1. Shares initially fell following the Q4 report due to the earnings miss, but the company's share price has bounced back -- and excitement for its upcoming split could pick up in the near future.
Notably, Supermicro stock has often made trading moves that have mirrored moves for Nvidia. While part of that is due to the AI leader's overall impact on sentiment in the AI space, Nvidia's earnings reports provide a meaningful bellwether for Supermicro's business performance. If Nvidia publishes strong results on Aug. 28, there's a very good chance that Supermicro stock will see an increase in bullish sentiment.
Nvidia will also likely provide an update on the timeline for the release of its upcoming Blackwell processors. While some commentary from Supermicro suggested that the next-generation processors could be delayed, subsequent reports have suggested that any postponement could be relatively minor. If so, that would likely be a bullish catalyst for both AI stocks.
On the heels of some turbulent trading, Supermicro is down roughly 47% from its high. Ultimately, sales and earnings performance will play a much bigger role in the stock's performance than the upcoming split, but the conditions could be set for a comeback rally. With Supermicro poised for a split a little more than a month after Nvidia publishes its much-anticipated earnings, excitement for the server specialist could be kicked back into overdrive.
Creating value for shoppers and shareholders
Jennifer Saibil: Costco Wholesale (NASDAQ: COST) has already caught investor attention over the past few months with its largest special dividend ever, management changes, and most recently, a highly anticipated membership-fee hike. It has demonstrated fabulous performance despite inflation, and its stock is up 57% over the past year.
It's also getting closer to a four-digit price tag. It's nearing record highs and hasn't split its stock since 1992.
Management constantly talks about creating value for its customers. That mission drives everything it does, from delaying its fee hike to its recent crackdown on membership sharing. It stands to reason that it wants to make sure it's driving value for shareholders and potential shareholders, and that often means making the stock accessible to investors who see a high-priced stock as out of reach.
As Costco stock rises, a stock split is looking more like a possibility. And don't expect the company's stock to slow down anytime soon. It has many growth drivers and has been reliable for steady growth throughout its lifetime. It's been resilient under inflation, and growth could accelerate as inflation stabilizes. Sales increased 9.1% in the 2024 fiscal third quarter (ended May 12), with a 6.6% increase in comparable sales. E-commerce, which is growing as a percentage of overall retail, was strong with a 20.7% jump.
More people are shopping at Costco, and they're shopping there more often. Member households increased 7.8% year over year in the quarter, and traffic was up 6.1%. Average ticket price was roughly flat, but that should change when shoppers feel more comfortable spending on larger, more expensive items, which should drive higher sales.
Investors shouldn't overlook Costco's expansion opportunities, both domestic and international. Management has said that in some high-traffic areas, shoppers would avoid the company's warehouses because they were too crowded, leading to lost sales. Adding stores in dense areas created more sales opportunities rather than cannibalizing existing stores. On top of that, there are regions throughout the U.S. that are underpenetrated, and international is still wide open.
Expect Costco stock to keep climbing. As it does, there could well be a stock split coming sometime soon.
Should you invest $1,000 in Super Micro Computer right now?
Before you buy stock in Super Micro Computer, 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 Super Micro Computer 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 $758,227!*
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 August 22, 2024
Jennifer Saibil has no position in any of the stocks mentioned. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale and Nvidia. The Motley Fool has a disclosure policy.
Beyond Nvidia: These 2 Companies Could Make Waves With Big Stock Splits was originally published by The Motley Fool