Similar to the alignment of the planets, a unique event has occurred on Wall Street in recent weeks. Namely, we witnessed the intersection of two of the hottest trends: artificial intelligence (AI) and demerger actions.
Stock splits are done by publicly traded companies as a superficial way to change their stock price and the number of shares outstanding. A stock split has no impact on a company’s market value or operating performance.
The two variations of stock splits announced by the companies are called “forward” and “reverse.” With forward splits, a company seeks to make its shares more affordable to ordinary investors. At the same time, reverse stock splits aim to increase a company’s stock price, often with the aim of ensuring that it meets the minimum listing standards of a major exchange.
Most investors tend to focus on forward stock splits because companies that do stock splits have a reputation for over-innovating and outperforming their competitors over the long term.
Meanwhile, artificial intelligence is considered the the hottest innovation since the proliferation of the Internet to daily life thirty years ago. According to PwC researchers, AI could add around $15.7 trillion to the global economy by 2030. Professional and everyday investors are simply not going to overlook such significant numbers, even if companies are still in the process. in the early stages of figuring out how to do it. use technology to increase their sales and profits.
While the semiconductor giant Nvidia (NASDAQ:NVDA) has been the most direct beneficiary of the AI revolution, another AI company is poised to steal the stock split spotlight (let’s say that three times fast!).
Nvidia makes waves by completing a 10-to-1 forward split
On May 22, Nvidia joined an exclusive club of just over half a dozen high-profile companies that have announced and/or completed stock splits in 2024. The company’s board of directors announced a 10-for-1 stock split intended to increase its capital. outstanding shares by a factor of 10 and reduce its share price to 1/10th of its previous price. This split became effective after the closing bell on June 7.
Nvidia’s stock split, which reduced its stock price to around $120, made it easier than ever for retail investors to participate in the rise of AI.
What has driven Nvidia’s valuation $2.7 trillion since the start of 2023 is its suite of AI-accelerating graphics processing units (GPUs). Based on the 3.76 million Nvidia data center GPUs shipped in 2023, according to TechInsights, the company accounted for a 98% monopoly share of AI GPUs deployed in high-computing data centers.
In addition to being the go-to source for companies wanting to train large language models and oversee generative AI solutions, Nvidia counts America’s largest companies among its primary customers. Microsoft, Metaplatforms, AmazonAnd Alphabet collectively contribute approximately 40% of its net revenue. In fact, Meta has increased its capital spending guidance to support its AI ambitions.
Nvidia is also benefiting from AI-GPU demand that is completely overwhelming supply. The laws of economics suggest that if demand for a good or service exceeds supply, the price of that good or service will increase until demand begins to decrease. Nvidia dramatically increased the cost of its cutting-edge chips, helping to drive a five-fold increase in data center revenue during the fiscal first quarter (ended April 28). As a result, its gross margin soars to 78.4%!
However, gone are the days when Nvidia was in the spotlight as Wall Street’s Ai stock splits.
Say Hello to Wall Street’s New Split Stock
After the closing bell on June 12, the semiconductor solutions giant Broadcom (NASDAQ:AVGO) lifted the hood on its fiscal second quarter operating results (ended May 5, 2024). While the focus has rightly been on its operational performance, perhaps the biggest takeaway was the 10-to-1 forward split approved by Broadcom’s board of directors.
Before being acquired by Avago Technologies in 2016 (Avago chose to keep the Broadcom name), the “old” Broadcom had carried out three stock splits. However, Avago never did a split. So, when this split becomes effective on July 15, it will be a first for the combined entity.
The tea leaves absolutely suggested that a split was in order. Based on after-hours trading activity on June 12, a single share of Broadcom was causing investors to lose more than $1,710. Once this stock split takes effect, investors will only need to set aside $171 (assuming no movement in its shares) to purchase one share.
Broadcom really made a name for itself in the AI space last year when it unveiled its Jericho3-AI chip. Jericho3 is capable of connecting up to 32,000 AI GPUs in highly compute-intensive data centers. The ability to reduce residual latency and accelerate the decision-making and calculation processes involved in AI-accelerated data centers is the essence of Broadcom’s AI solutions.
Broadcom also has leading AI networking partners. The company notably partnered with Alphabet last year to integrate Google Cloud’s generative AI solutions into Symantec’s security platform (Symantec is a subsidiary of Broadcom).
This is a good time to mention that Broadcom does much more than just develop AI solutions. It generates a significant portion of its revenue from the sale of wireless chips and accessories used in next-generation smartphones. Although smartphones do not fit the AI growth trend, the deployment of 5G encourages a regular cycle of device replacement. This should enable Broadcom to increase its sales backlog and operating cash flow.
Additionally, Broadcom has numerous opportunities in other segments, including security solutions, as well as connectivity and sensor solutions for industrial equipment and next-generation vehicles.
Even after its stock’s massive rise, Broadcom can still be bought for less than 30 times the coming year’s earnings. Although I think a short-term pullback will take shape (no stock is going straight up), it’s reasonable to argue that Broadcom’s stock could potentially go even higher.
Should you invest $1,000 in Broadcom right now?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. 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. Sean Williams holds positions at Alphabet, Amazon and Meta Platforms. The Motley Fool holds positions and recommends Alphabet, Amazon, Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends Broadcom and 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.
Check out Wall Street’s newest stock split: The hottest artificial intelligence (AI) company isn’t called Nvidia was originally published by The Motley Fool
