Stock splits are sweeping the AI sector. Here’s how to profit from them.
In the dotcom era, stock splits became commonplace in response to rising stock prices. Amid the current artificial intelligence (AI) boom, a similar pattern could be developing. Several AI companies have already split their shares, and more splits could be on the way for other companies trading at high prices.
Investors should realize that stock splits do not fundamentally change the value of a stock or the underlying company. However, they usually occur after the stock price has risen significantly and are a signal that management is confident that the stock price can rise further.
There is also evidence, according to a Bank of America study, that stocks perform better in the year after they split. While there is no guarantee that a particular stock that splits will S&P 500it provides historical evidence that the average stock-split stock does. In that regard, these three AI stock-split stocks appear to be the long-term winners.
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1. Nvidia
Nvidia (NVDA -1.59%) needs little introduction at this point. The AI chip superstar has been driving the sector, soaring roughly 700% since the start of 2023. Nvidia’s most recent stock split, a 10-for-1 split, went into effect after the market closed on June 7, and the stock has been falling ever since.
Nvidia continues to show plenty of upside potential, even as its market cap now hovers just under $3 trillion. The company has a massive lead in data center GPUs, the cutting-edge chips needed to power AI models like ChatGPT, and that lead seems likely to only widen after the launch of chips built on its new Blackwell platform in the fourth quarter.
In addition, the company continues to grow rapidly, with revenue increasing 122% year-over-year to $30 billion in the second quarter of fiscal 2025.
While some investors are concerned about the possibility of an AI sector bubble, there is still plenty of evidence that demand for Nvidia’s components is skyrocketing. The latest anecdote to support that theory: Reportedly, Oracle founder Larry Ellison and Tesla CEO Elon Musk recently took Nvidia CEO Jensen Huang out to dinner so they could personally beg him to sell more GPUs to their companies.
Given its established competitive advantages, growing demand for its products, and long development path for generative AI, Nvidia still seems like a smart buy.
2. Supermicrocomputer
Supermicrocomputer (SMCI 4.59%) is another AI stock that’s breaking out. Like Nvidia, its revenue has soared, up 144% in the most recent quarter to $5.31 billion. However, the company’s gross margin has fallen, weighing on profits, and the market has bid the stock down.
Later, Supermicro shares fell after a short-seller attacked the company and management said it would delay its annual 10-K. CEO Charles Liang responded to the short-seller’s accusations, saying that business is still going strong. Importantly, he also said that despite the filing delay, the company does not expect any material changes in its financial results from what it previously reported.
Supermicro is known for producing high-density servers that perform exceptionally well in AI applications. The company also dominates the market for liquid-cooled AI servers, giving it a competitive edge.
A good 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 issue is material.
Supermicro’s 10-for-1 stock split is scheduled for October 1. That event could be a catalyst for the stock’s recovery.
3.Broadcom
Broadcom‘S (AVGO 2.20%) business is diversified across cybersecurity, virtualization software, semiconductors and network infrastructure. It doesn’t have the same level of exposure to AI as Nvidia and Supermicro, but it is seeing growing demand for the new technology, thanks in part to its switches, networking solutions and custom accelerators for AI data centers.
CEO Hock Tan expects the company’s AI revenue to reach $12 billion this year, about a quarter of its total revenue.
The tech giant also has a long track record of growing its business, both organically and through acquisitions, typically cutting costs to boost profits. In its most recent fiscal quarter, the company reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $8.2 billion. That represented 63% of its total revenue, a ratio nearly matching Nvidia’s.
Broadcom executed a 10-for-1 stock split on July 12, and its stock has since fallen slightly along with the rest of the AI sector. Broadcom currently 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 set to continue doing so. With strong competitive advantages, huge growth opportunities, and affordable valuations, they all appear to be smart long-term buys.
