One of the biggest trends for investors this year is the renewed popularity of stock splits. The current bull market is fueling higher stock prices, as evidenced by stock split announcements by Chipotle And Walmart.
However, the rapid adoption of artificial intelligence (AI) is also driving up stock prices, thanks to increased sales and profits. The standard bearer of this trend is Nvidiawho announced a 10 for 1 stock split after its stock price soared 728% since the start of last year (as of market close Thursday), coinciding with the advent of generative AI.
The speed with which AI took hold boosted the fortunes of a number of companies, and the resulting stock price rises made them prime candidates for stock splits. Bank of America analyst Jared Woodard noted that many companies are starting to consider a stock split when their stock price exceeds $500.
A look at some of the best-performing stocks since the start of 2023 suggests there could be more stock splits in the year ahead.
Super Micro Computer: current price around $778
Super microcomputer (NASDAQ:SMCI), also called Supermicro, is best known for integrating cutting-edge chips into its cutting-edge servers, designed to withstand the rigors of AI training and inference. The company offers a variety of servers featuring free-air, liquid-cooled, and traditional air cooling, with many options for businesses operating anywhere across the AI ​​spectrum.
Close partnerships with leading AI chip manufacturers help Supermicro maintain a steady supply of the most in-demand AI chips to power its servers, and demand has been off-the-charts. During the company’s third quarter of fiscal 2024, Supermicro generated revenue that increased 201% year-over-year to $3.85 billion, while its adjusted earnings per share (EPS) jumped 308% to $6.65.
The company is working to expand its facilities to meet this growing demand. Management estimates it can increase production to $25 billion per year in the coming years.
In its 31-year history, Supermicro has never split its shares, but until recently it hadn’t experienced such a growth spurt. Since the start of last year, the stock has soared more than 848%, but the results are even more pronounced when you take a step back.
Over the past 10 years, Supermicro’s revenue has jumped 799%, while net profit has jumped more than 2,330%. These results fueled a stock price that soared 2,980%. Despite its stellar performance, Supermicro stock is surprisingly cheap, selling at just 2x forward sales.
If growth continues on its current trajectory – and all indications are that it will – Supermicro shares will be out of reach for all but the wealthiest investors, except those with access to fractional shares . This incentivizes the company to make its shares more accessible to ordinary investors, which would result in a stock split.
Microsoft: current price around $425
Microsoft (NASDAQ:MSFT) is no wallflower, thanks to its ubiquitous Windows PC operating system and Office suite of workplace productivity tools. More recently, however, the company has gained a head start on the competition with its early advances in generative AI.
Microsoft’s stake in OpenAI gave the company unrestricted access to the early stages of this revolutionary technology. This gave rise to Copilot, the company’s suite of AI-powered digital assistants.
These tools are deeply integrated into a wide range of Microsoft products and services, and demand for AI has sparked the growth of the company’s cloud infrastructure service. Azure Cloud revenue grew 31% year over year in Q1, topping both Amazon Web Services (AWS) and AlphabetGoogle’s Google Cloud, which grew by 17% and 28%, respectively, according to research firm Canalys.
For its third fiscal quarter 2024 (ended March 31), Microsoft’s revenue growth accelerated to 17% year-over-year, while EPS climbed 20%. During its earnings conference call, the company noted that AI services contributed seven points to its cloud growth. This shows that AI has a halo effect on Azure Cloud, increasing its adoption.
Microsoft’s track record of growth is undeniable, but recent results have made it the most valuable company in the world, with a market capitalization of more than $3.1 trillion and its stock price rising 77% since the beginning of last year. The results are even more convincing when considered over the long term.
Over the past 10 years, revenue has grown 165%, leading to a 376% increase in bottom line. As a result, Microsoft’s stock price jumped almost 918%, with a current price of $425. The stock is a little expensive, at 36 times forward earnings, but given its history and the vast opportunities ahead, it deserves a premium.
The company hasn’t split its shares since 2003, but that was a long time ago. Microsoft is currently trading at an all-time high, and we’re only seeing the tip of the iceberg when it comes to the company’s AI opportunities.
With all of this as a backdrop, we could finally see another Microsoft stock split this year.
Metaplatforms: current price around $494
After experiencing a dip in digital ad spending during the recession, Metaplatforms (NASDAQ:META) the stock came back strong. The seeds planted during the company’s cost-cutting campaign are bearing fruit and the advertising market is seeing a rebound. Meta has a long history of deploying AI in its daily operations, but the dawn of generative AI has taken this to the next level.
Previous versions of AI have helped Meta choose more relevant content for users on its social media platforms, match advertising with the right viewer, and tag photos, among other uses. This experience helped the company quickly deploy AI more broadly when generative AI came along.
Meta has developed its Llama (Large Language Model Meta AI), which is now in its third edition. Llama is among the leading AI systems and is available on all major cloud infrastructure services, which pay Meta for the privilege of offering it on their platforms. This is the first in a series of new ways Meta is expected to generate revenue through AI.
In the first quarter, Meta’s revenue of $36.4 billion climbed 27% year-over-year, while its EPS of $4.71 jumped 114%. This may just be the beginning, as the recovery in digital marketing gathers pace. As ad spending accelerates, Meta should continue to benefit.
The company is also working to help advertisers on its platform be more successful. Chief among its offerings is Meta Advantage+, a suite of AI-driven tools that has become “one of the fastest-growing advertising products” in the company’s history.
One test generated a 35% increase in incremental return on ad spend and a 58% increase decrease in incremental cost per purchase. Not only do advertisers get better results, but they also do it more profitably. These automated tools help make creating advertising campaigns simpler and more lucrative, thereby attracting and retaining more advertisers.
Since the start of last year, Meta Platforms shares have jumped 310%, but that’s not unusual. The last 10 years have been a lucrative period for Meta and its investors. Revenue rose 1,150%, while net profit jumped 1,460%.
This fueled Meta’s strong share price gains of 681%. With a stock price of around $494, Meta is less than 6% off its recent all-time high set in April. Additionally, the stock currently sells for just 25 times forward earnings, an attractive price given Meta’s history.
Given the company’s consistent performance, multiple growth drivers, and the opportunity presented by AI, this could be the year Meta finally embraces a stock split.
Should you invest $1,000 in Super Micro Computer right now?
Before buying Super Micro Computer stock, consider this:
THE Motley Fool Stock Advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now…and Super Micro Computer was not one of them. The 10 stocks selected could produce monster returns in the years to come.
Consider when Nvidia made this list on April 15, 2005…if you had invested $1,000 at the time of our recommendation, you would have $740,688!*
Equity Advisor provides investors with an easy-to-follow plan for success, including portfolio building advice, regular analyst updates, and two new stock picks each month. THE Equity Advisor the service has more than quadrupled the return of the S&P 500 since 2002*.
*Stock Advisor returns as of June 3, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Suzanne Frey, an executive at Alphabet, is a member of the board of directors of The Motley Fool. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Danny Vena holds positions at Alphabet, Amazon, Chipotle Mexican Grill, Meta Platforms, Microsoft, Nvidia and Super Micro Computer. The Motley Fool holds positions and recommends Alphabet, Amazon, Bank of America, Chipotle Mexican Grill, Meta Platforms, Microsoft, Nvidia and Walmart. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Beyond Nvidia: 3 Proven Artificial Intelligence (AI) Stocks That Could Split Their Stocks in 2024 was originally published by The Motley Fool
