For much of the past thirty years, investors have had a new technology or trend that caught their attention. The rise of the Internet, business-to-business commerce and cloud computing are just some of the big-dollar markets that have lured investors.
But on rare occasions, two popular trends compete for Wall Street’s attention at the same time. In 2024, we witnessed the artificial intelligence (AI) revolution and the stock split euphoria, which pushed the stock market’s major indexes to record highs.
A stock split is a tool that publicly traded companies have at their disposal to cosmetically adjust their stock price and the number of shares outstanding by the same factor. What makes these stock price adjustments “cosmetic” is that they have no impact on a company’s market capitalization or operating performance.
Although there are two varieties of stock splits – forward and backward – investors focus most of their attention on companies that complete a forward stock split. While reverse splits, which increase a company’s stock price, are often executed from a position of operational weakness, the companies that execute forward splits almost consistently outperform their competition when it comes to innovation and operational execution.
Since the start of 2024, just north of a dozen notable companies have announced and/or completed a stock split. All but one of these high-profile splits are of the forward type, which aims to make shares more nominally affordable for ordinary investors.
With AI stocks soaring in 2024, it’s no surprise that some of the most prominent stock splits are leading AI companies. But after the close of trading today, September 30, the most anticipated AI stock split of the fourth quarter will take center stage.
Nvidia and Broadcom were Wall Street’s top AI stock splits in 2024
In the past four months Nvidia (NASDAQ: NVDA) And Broadcom (NASDAQ:AVGO) have been making headlines among artificial intelligence stocks – and for good reason.
On May 22, Nvidia became the first AI stock to announce its intention to split its shares. Following a more than $2 trillion increase in Nvidia’s market cap in less than 17 months, the company’s board declared a 10-for-1 forward split, which took effect after the close of trading on June 7.
Nvidia’s historic rise in value is tied to its early dominance in the AI graphics processing unit (GPU) market. The company’s variety of GPUs, including the ultra-popular H100, have a virtual monopoly in AI-accelerated enterprise data centers.
Investors are also clearly excited about the upcoming release of the next-generation Blackwell GPU architecture, which is significantly more power efficient than its predecessor chip and can accelerate everything from generative Ai solutions to quantum computing calculations. Nvidia hasn’t been shy about investing in innovation and should have no trouble maintaining its AI-GPU computing advantages for the foreseeable future.
Meanwhile, AI networking solutions provider Broadcom announced its first-ever stock split in mid-June. This 10-for-1 forward split became effective after the close of trading on July 12.
Just as companies rely on Nvidia’s hardware to power high-compute data centers, Broadcom’s networking solutions are being leaned on to minimize request response times – something critical for AI-powered software and systems – and to maximize the computing capacity of computers. AI GPUs.
While Broadcom’s rapid growth comes from its AI solutions, it is a company with a significantly more diverse revenue stream than leading AI stock Nvidia. For example, it is one of the largest suppliers of wireless chips and accessories used in next-generation smartphones. A consistent device replacement cycle fueled by the 5G revolution was music to Broadcom’s ears.
While Nvidia was the cream of the crop among AI stock split stocks in the second quarter, and Broadcom’s split took the spotlight in the third quarter, a new AI stock split is ready for its moment in the sun.
Wall Street’s most anticipated AI stock split of the fourth quarter has arrived
When after-hours trading officially ends on September 30, the company will focus on customizable rack servers and storage solutions Super microcomputer (NASDAQ: SMCI) will complete its first ever split since going public over 17 years ago. Similar to Nvidia and Broadcom, Super Micro’s split is 10-to-1, which will lower its nominal stock price to about $40 per share.
Super Micro shares have skyrocketed 779% in the past two years, with demand for AI infrastructure leading the way. The company’s revenue more than doubled to $14.9 billion in fiscal 2024 (ending June 30), with the company’s current guidance midpoint for fiscal 2025 at $28 billion. CEO Charles Liang expects annual sales to eventually reach $50 billion.
Something else working in Super Micro’s favor is the integration of Nvidia’s prized H100 GPUs into its AI-focused rack servers. Reliance on this top hardware has made it a popular choice for companies looking to gain a competitive edge and/or secure a first mover advantage.
But ultimately there are two sides to this coin. While Nvidia’s H100 is exceptionally popular and is the preferred hardware choice in AI-accelerated data centers, it is also lagging behind due to overwhelming demand. Super Micro Computer’s dependence on Nvidia’s AI GPUs puts it at risk of not being able to meet the demand of its own customers.
Another risk for Super Micro Computer is the risk of the AI bubble bursting. There hasn’t been a next-big-thing technology or trend that has avoided a bubble burst for at least thirty years. This means that investors always overestimate how quickly a new technology or trend will be adopted and useful. Since most companies don’t have a clear game plan for generating a positive return on their AI investments, at least initially, all signs point to artificial intelligence being the next in a long line of much-hyped bubbles.
If the AI bubble were to burst, as history suggests, it wouldn’t be the first time the hype surrounding Super Micro failed to live up to expectations. Growth forecasts for the company went through the roof in the mid-2010s. Unfortunately, the rise of cloud computing did not meet these high expectations, causing the company’s stock prices to fall.
I would be remiss if I didn’t also mention that noted short seller Hindenburg Research alleged that Super Micro Computer engaged in “accounting manipulation.” The Wall Street Journal also reports that the US Department of Justice has launched an early-stage investigation into the company. Although Super Micro has denied these claims, the company has postponed the filing of its annual report. Despite Liang claiming he has confidence in his company’s internal teams and does not expect any material changes to the company’s reported financials, this filing delay has clearly made investors skittish.
Now that Super Micro Computer’s long-awaited stock split is finally here, we’ll soon find out which side of the aisle the retail investing community favors.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
Wall Street’s Most Anticipated Artificial Intelligence (AI) Stock Split of the Fourth Quarter Has Arrived, Originally Published by The Motley Fool
