While there's no denying that artificial intelligence (AI) has played a key role in sending all three major U.S. stock indexes to multiple record-closing highs in 2024, the excitement surrounding stock splits has played a close second fiddle in lifting valuations.
A stock split gives publicly traded companies the ability to adjust their share price and outstanding share count by the same magnitude, while having no effect on their market cap or underlying operating performance.
Though there are two distinct types of stock splits, investors gravitate to one far more than the other. Reverse-stock splits, which are the less sought after type, are designed to increase a company's share price. These splits are usually completed by struggling businesses that are attempting to meet the minimum continued listing standards of a major stock exchange.
On the other hand, investors usually flock to companies conducting forward-stock splits. A forward split reduces a company's share price to make it more nominally affordable for everyday investors and/or employees who lack access to fractional-share purchases through their broker. This is the type of split high-flying companies with clear-cut competitive advantages undertake.
Since late January, a little over a dozen brand-name or high-profile companies have announced or completed a stock split -- and all but one is of the forward-split variety.
Although market-leading AI stocks Nvidia (NASDAQ: NVDA) and Broadcom (NASDAQ: AVGO) have, arguably, been Wall Street's most-anticipated splits of 2024, they're going to be forced to cede the spotlight to two new artificial intelligence stock-split stocks next week.
No stock splits drew more buzz in 2024 than Nvidia and Broadcom
According to a 2023 report ("Sizing the Prize") from PwC, the AI revolution has the ability to add $15.7 trillion to the U.S. economy by 2030, with a combination of productivity gains and consumption side effects driving the charge. With an addressable market this large, it's really no surprise that Nvidia and Broadcom have garnered so much interest.
With its market value climbing by well over $2 trillion since the start of 2023, Nvidia's board declared a historic 10-for-1 forward split, which went into effect following the close of trading on June 7. Meanwhile, Broadcom's first-ever stock split, also 10-for-1, was announced in mid-June and completed after the close of trading on July 12.
Nvidia finds itself on the leading edge of the AI wave because its AI-graphics processing units (GPUs) are the undisputed top choice for businesses wanting to run generative AI solutions and build/train large language models (LLMs). TechInsights estimates Nvidia accounted for approximately 98% of all GPU shipments to data centers in 2022 and 2023, and the extensive backlog of its ultra-popular H100 GPU suggests it still maintains a near-monopoly share of the AI-GPU market.
Equally important, Nvidia's CUDA software platform is keeping enterprise clients loyal to its array of products and services. CUDA is the toolkit used by developers to build LLMs and get the most they can out of their Nvidia GPUs.
Broadcom is the equivalent of Nvidia, but from an AI networking solutions standpoint. Its solutions are being counted on to reduce tail latency in AI-accelerated data centers and maximize the computing capacity of AI-GPUs. The bulk of Broadcom's sales growth is coming from its AI-driven ecosystem at the moment.
But Broadcom has a considerably more diverse revenue stream than Nvidia. In addition to its AI prowess, it's a leading provider of wireless chips and accessories used in next-generation smartphones, optical components for industrial equipment, networking products for new vehicles, cybersecurity solutions, and private/hybrid cloud solutions for businesses.
While these two AI juggernauts will continue to be leaders, their time in the spotlight among AI stock-split stocks is over. Next week, two high-flying AI stock splits will take center stage.
Super Micro Computer
The first AI stock ready to take its place among the Class of 2024 stock-split stocks is customizable rack server and storage solutions specialist Super Micro Computer (NASDAQ: SMCI). Super Micro's board authorized a 10-for-1 split in early August, which is set to take effect following the close of trading on Sept. 30. This will be its first split since becoming a publicly traded company in March 2007.
While Nvidia's GPUs are the brains behind AI-accelerated data centers and Broadcom is the leading provider of AI networking solutions, Super Micro Computer is the go-to infrastructure company for businesses wanting to build out their high-compute data centers. Super Micro enjoyed 110% growth in net sales in fiscal 2024 (ended June 30), and it's forecasting 87% sales growth at the midpoint of its revenue guide ($28 billion) for the current fiscal year.
Super Micro has been particularly popular because it incorporates Nvidia's H100 into its customizable rack servers. Just keep in mind that orders for the H100 are backlogged, which has the potential to adversely impact Super Micro's ability to meet the needs of its customers.
Something else to consider about Super Micro Computer is that it's dealt with hyped growth expectations before and tripped up. Shares of the company surged in the mid-2010s on the idea that its infrastructure solutions would be in high demand given the lofty expectations tied to enterprise cloud computing. Unfortunately, these aggressive growth forecasts weren't sustainable.
Historically speaking, every next-big-thing innovation or technology for the last 30 years has needed time to mature. AI is highly unlikely to be the exception to this unwritten rule, which may leave Super Micro's aggressive growth forecasts vulnerable to downside revisions.
Lastly, Super Micro is also reportedly facing an early stage probe from the U.S. Justice Department, per The Wall Street Journal, following a short-seller report from Hindenburg Research that alleged "accounting manipulation." While the company has denied Hindenburg's report, the delayed filing of its annual report isn't helping matters.
Despite being remarkably cheap for a high-growth AI stock -- just over 10 times forward-year earnings -- Super Micro has a lot to prove to Wall Street and investors.
Lam Research
The second AI stock-split stock that will be taking the spotlight away from Nvidia and Broadcom this coming week is semiconductor wafer fabrication equipment company Lam Research (NASDAQ: LRCX).
Lam's board approved a 10-for-1 stock split and authorized a $10 billion share repurchase program on May 21, with the company's split -- it's first since 2000 -- taking place following the close of trading on Oct. 2. Chief Financial Officer Doug Bettinger has noted that his company intends to return "75% to 100% of free cash flow to stockholders in the form of dividends and share buybacks."
Lam's role in the burgeoning AI ecosystem is to supply the wafer fabrication equipment used by semiconductor companies to manufacture AI solutions. In particular, its equipment plays a key role in the packaging of high-bandwidth memory (HBM), which is critical to the needs of AI-accelerated data centers. As demand for GPUs and HBM rises, so does the need for Lam's equipment.
While Lam Research isn't growing at the same breakneck pace as Super Micro Computer, it's delivering steady mid-to-high teens sales growth and should sustain low-double-digit earnings-per-share growth through 2028.
But even Wall Street's top AI companies contend with headwinds. The biggest concern for Lam is that U.S. regulators have clamped down on AI-related chip and equipment exports to China over the last two years. In the June-ended quarter, 39% of Lam's sales can be traced to China, making it more important than any geographic region. If regulators continue to take a hard-line stance with China, Lam's ceiling may be limited.
There are also quite a few warnings that the U.S. economy may be steering toward a recession. Lam Research is highly cyclical (as are the other AI stocks discussed here) and would likely see future order activity weaken if U.S. or global economic activity slowed or shifted into reverse
Although Lam Research looks to have more long-term upside than Super Micro, it still possesses near-term risks to investors after a mammoth run higher for its shares.
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 $756,882!*
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 23, 2024
Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lam Research and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
Wall Street's 2 Newest Artificial Intelligence (AI) Stock-Split Stocks Are Stealing the Spotlight Next Week was originally published by The Motley Fool