Stock splits were common during the dot-com bubble as stock prices soared. A similar pattern may be emerging during the current artificial intelligence (AI) boom. Several AI companies have already split their stocks, and more are likely to follow at other highly-traded companies.
Investors should understand that while stock splits do not fundamentally change the value of a stock or the underlying business, they usually occur after a significant increase in the share price and signal management’s confidence that the share price can rise further.
There’s also evidence that stocks perform better the year after splitting, according to a Bank of America study. While there’s no guarantee that a particular splitting stock will outperform the S&P 500, there is historical evidence that the average splitting stock will. In that respect, these three AI splitting stocks look like they’ll be winners in the long run.
1. NVIDIA
NVIDIA (NASDAQ: NVDA) At this point, it doesn’t really need much of an explanation: The AI chip superstar has led the sector, up about 700% since the start of 2023. Nvidia’s most recent stock split (10-for-1) took effect after the market closes on June 7, and the stock has fallen since then.
Nvidia continues to show significant upside potential even as its market cap hovers near $3 trillion. The company has a big lead in data center GPUs, the cutting-edge chips needed to power AI models like ChatGPT, and the launch of chips built on its new Blackwell platform in the fourth quarter should widen that lead.
Moreover, the company is on pace to continue its rapid growth, with revenues projected to reach $30 billion in Q2 FY25, up 122% year over year.
While some investors worry about a possible bubble in the AI sector, there’s still plenty of evidence to suggest that demand for Nvidia’s parts is surging. The latest anecdote to support that theory is that Oracle founder Larry Ellison and Tesla CEO Elon Musk recently hosted Nvidia CEO Jensen Huang for dinner and directly begged him to sell their company more GPUs.
Given its solid competitive advantages, growing demand for its products, and the long road of development ahead in generative AI, Nvidia still seems like a smart buy.
2. Supermicrocomputer
Super Microcomputer (Nasdaq: SMCI) is another fast-growing AI stock. Like Nvidia, the company’s revenue has been soaring, growing 144% to $5.31 billion in the most recent quarter. But the company’s gross margins have been falling, squeezing profits and causing the stock to sell off on the market.
The story continues
Short sellers subsequently attacked the company, causing Supermicro’s stock price to plummet and leading management to announce that it would delay filing its annual 10-K. CEO Charles Liang responded to the short sellers’ accusations by saying that the business remains strong. Importantly, he said that despite the delayed filing, the company does not expect any material changes from its previously reported financial results.
Supermicro is known for manufacturing high-density servers that perform exceptionally well in AI applications, giving it a competitive advantage by dominating the liquid-cooled AI server market.
A big reason to buy the stock now is Supermicro’s valuation: At just 22 times earnings, the company looks significantly undervalued, assuming neither of these two issues matter.
Supermicro’s 1-for-10 stock split is scheduled for October 1. This event could spark a recovery in the stock price.
3. Broadcom
Broadcom (NASDAQ: AVGO) The company’s businesses span cybersecurity, virtualization software, semiconductors and network infrastructure, and while it isn’t as focused on AI as NVIDIA or Supermicro, its switches, networking solutions and custom accelerators for AI data centers are helping to drive demand for new technologies.
CEO Hock Tan said the company expects AI revenue to reach $12 billion this year, roughly a quarter of its total sales.
The tech giant has a long track record of expanding its business through both organic growth and acquisitions, which typically cut costs and boost profits. In its most recent quarter, the company reported adjusted EBITDA of $8.2 billion, representing 63% of total revenue, roughly on par with NVIDIA’s.
Broadcom completed a 10-for-1 stock split on July 12, and since then, its stock price has fallen in line with the rest of the AI sector. Currently, Broadcom trades at 37 times earnings, which is a reasonable multiple for an AI leader, and profitability should improve as the integration of its major VMware acquisition is completed.
All three of these AI stocks have performed well and are poised to continue doing so in the future. Given their strong competitive advantages, big growth opportunities, and affordable valuations, they all look like smart buys for the long term.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Jeremy Bowman has invested in Bank of America and Broadcom. The Motley Fool has invested in and recommends Bank of America, Nvidia, Oracle, and Tesla. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
The article 3 Artificial Intelligence (AI) Stocks with Splits was originally published by The Motley Fool.
