The stock market is red-hot. The S&P 500 crossed 5,000 for the first time ever; the Dow Jones Industrial Average is making latest all-time highs commonly.
Meanwhile, the Nasdaq Composite, probably probably the most tech-heavy of the important indexes, is riding a wave of artificial intelligence (AI) optimism right into the stratosphere. Over the past 12 months, that index is up 33%.
With so many latest highs being made, some stock prices have reached towering heights. So let’s talk stock splits and cover three stocks — Super Micro Computer (NASDAQ: SMCI), Nvidia (NASDAQ: NVDA), and Meta Platforms (NASDAQ: META) — which could be ready.
The preferred AI stock around looks primed for a first-ever split
Jake Lerch (Super Micro Computer): If I had to pick out one stock since the mascot for the current bull market, it just might be Super Micro Computer. Its shares generated a mind-blowing total return of 774% inside the last 12 months.
To put that in context, it’s taken Microsoft (which isn’t any slouch regarding stock performance) the last eight years to generate a similar total return.
Super Micro Computer’s rapid rise has seen its stock price shoot up from around $86 a share to over $880. That, my friends, is a recipe for a stock split. The company has never conducted a stock split in its 17 years as a public company. Nonetheless, with its stock price closing in on $900 a share and investor interest surging, it might be time.
The company’s near-term prospects look spectacular since the AI revolution drives up demand for its off-the-shelf server racks — one in all the primary constructing blocks for AI data centers. The company reported exceptional earnings results just a couple of weeks ago, lifted its full-year guidance, and provided highly upbeat commentary in a post-earnings conference call.
Briefly, given the stock’s amazing run, now may thoroughly be one of the best time for Super Micro Computer to perform its first stock split — a development many investors would cheer.
AI chip dominance has taken this stock’s share price into the clouds
Will Healy (Nvidia): Amid the generative AI boom, Nvidia has been on a tear. Over the past 12 months, the stock has risen almost 240% as demand for chips designed for AI workloads has boomed. That took the share price to around $740 per share as of the time of this writing.
Coincidentally, that places its price near where Nvidia last executed a 4-for-1 stock split, in July 2021, with the replenish nearly 300% since then.
Along with the company’s current stock price, Nvidia’s market positioning and growth appear to make a case for an extra split. It has an estimated 85% market share inside the high-end AI chip market, in step with an analyst at Raymond James. Moreover, Allied Market Research estimates a compound annual growth rate of 38% for the AI chip market through 2032.
Given such numbers, it should come as little surprise that its revenue for the third quarter of fiscal 2024 (ended Oct. 29) rose 206% yearly to greater than $18 billion. With that, the gross margin surged to 74% versus 54% inside the year-ago quarter, when operating expenses rose by 16%.
Consequently, Nvidia’s net income of over $9.2 billion rose by nearly 14 times! Amid such increases, its P/E ratio of 97 has not deterred investors from bidding the stock higher.
Furthermore, Nvidia can have one other less discussed reason for wanting a split. At a market cap of $1.8 trillion, it has arguably grow to be the market’s most essential semiconductor stock. A lower nominal share price would make it a primary candidate for inclusion inside the Dow Jones Industrial index. The Dow is a price-weighted index, and Nvidia’s addition would add to its prestige and investor interest, serving as yet yet another positive catalyst.
Indeed, almost about semiconductor stocks, none appears higher positioned than Nvidia. And with its continuing growth prospects and history, a stock split could make it more appealing to prospective buyers and indexes alike.
A stock split could potentially keep Meta’s red-hot momentum going
Justin Pope (Meta Platforms): In late 2022, when shares were just $89, most investors probably didn’t have a possible stock split for Meta Platforms on their bingo cards. But Wall Street will soon wrap up Q1 of 2024, and the stock is quickly running toward $500. This epic comeback isn’t any fluke. The stock on fire since overcoming adversity in its promoting business and cutting expenses to get its profits back on track.
Lost inside the stock’s ups and downs were two consistent truths. First, Meta’s three-headed monster of social media apps, Facebook, Instagram, and WhatsApp, never stopped growing. Monthly energetic users rose from 3.71 billion in Q3 of 2022, when the stock bottomed, to 3.98 billion today. That doesn’t appear like much, but half the world’s population is on these apps, and Meta’s audience continues to be rising at a meaningful pace.
Second, Meta has continually invested in constructing computing systems for the company’s long-term AI ambitions. Meta is already using AI to grow its promoting business, and the consumer-facing nature of Meta’s apps gives the company tons of room for innovation over time.
Stock splits don’t change a corporation’s fundamental valuation. Fortunately, Meta’s forward P/E of 23 is attractive if the business delivers the 20% annualized earnings growth analysts expect. If Meta does split its stock, the numbers make it a stock split you’ll give you the option to confidently buy and hold for the long term.
Must you invest $1,000 in Super Micro Computer immediately?
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Idiot’s board of directors. Jake Lerch has positions in Nvidia. Justin Pope has no position in any of the stocks mentioned. Will Healy has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Meta Platforms, Microsoft, and Nvidia. The Motley Idiot recommends Super Micro Computer and recommends the subsequent options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure policy.
Stock-Split Watch: 3 Artificial Intelligence (AI) Stocks Ready for a Stock Split was originally published by The Motley Idiot