Stock splits are back in the spotlight after Nvidia took this step recently. Investors should keep in mind that this is simply a cosmetic measure that does not change the value and fundamentals of a company. What stock split The goal is to increase the number of shares outstanding while reducing the price of each share. Thus, the overall market value of the company remains the same.
However, some believe that a stock split could increase demand for a company’s shares because more investors would be able to buy them, with each share now available at a lower price.
This is probably one of the reasons why people like Super microcomputer (NASDAQ:SMCI) And ASML Holding (NASDAQ: ASML) might consider splitting their shares. Let’s take a look at why these two companies, which play a crucial role in the artificial intelligence (AI) revolution, seem ripe for a stock split.
1. Super microcomputer
Super Micro Computer (also known as Supermicro) shares have tripled in value over the past year and are now worth just over $760 per share. However, it remains down 34% from the 52-week high set in March, which is why management could consider splitting the stock to attract investor interest.
Supermicro has never conducted a stock split. Management likely didn’t feel the need as the stock was trading around $80 at the end of 2022. However, growing demand for its AI server solutions has driven its stock price up 858% since early 2023. This means that Supermicro has jumped by a multiple of over 9 in less than 18 months.
That’s why the time seems right for a stock split at Supermicro. However, since a split is nothing more than a cosmetic measure, now would be a good time to buy its shares regardless of a split to take advantage of the recent decline in the stock price.
After all, demand for Supermicro’s AI servers is so strong that its revenue tripled in the third quarter of its 2024 fiscal year (which ended March 31) to $3.85 billion, and its Adjusted net income quadrupled year over year to $6.65 per share.
Management forecast fourth-quarter revenue of $5.3 billion and expects adjusted earnings to come in at $8.02 per share, the middle of its guidance range. The company reported revenue of $2.18 billion in the same quarter last year, along with adjusted earnings of $3.51 per share. If it meets its forecasts, top and bottom lines should still more than double in the current quarter.
And Supermicro can maintain its healthy growth in the long term as the AI ​​server market it provides is expected to grow 26% annually over the next five years. AI server sales are expected to grow from just over $12 billion in 2023 to over $50 billion in 2029.
There are also more ambitious estimates, with contract electronics manufacturer Foxconn expecting AI server sales to reach $150 billion in 2027.
Supermicro’s recent results indicate that it is growing faster than the AI ​​server market, a sign that it is gaining ground in this area. Overall, the company’s lucrative AI opportunities and rapid growth are strong reasons to buy the stock now. Additionally, Supermicro trades at just 21 times forward earnings, a discount to Nasdaq-100The forward earnings multiple of 28 (using the index as a proxy for technology stocks).
So, investors have a great opportunity to buy this AI stock, and they should consider taking advantage of it, given that its healthy prospects won’t be affected by a stock split.
2. ASML management
ASML Holding is another company that may be considering a stock split, with each share now trading at just over $1,040. The last time the Dutch semiconductor manufacturing equipment supplier did a split was in October 2007, and its shares have jumped 2,250% since then.
These impressive gains are the result of the central role it plays in the semiconductor industry, not its spinoff nearly 17 years ago.
ASML’s extreme ultraviolet (EUV) lithography machines enable foundries to manufacture chips for a variety of applications. And AI is an enabler that gets customers lining up to buy its EUV machines to make advanced chips using 7 nanometer (nm), 5 nm, 3 nm or smaller process nodes. The smaller the process node, the more powerful and efficient the chip.
As need for AI chips grows, ASML sees high demand for its EUV machines, and the company had an order backlog worth 38 billion euros ($40.9 billion) at the end of the first quarter of 2024. This is higher than the revenue forecast The company’s annual revenue for 2024 is $29.6 billion, which is in line with its 2023 revenue.
Management expects revenue growth to accelerate in the second half of 2024 thanks to the recovery of the semiconductor market. Additionally, the company is expected to begin shipping its new machine, priced at $380 million, to semiconductor suppliers this year to help them make advanced AI chips.
The market for these chips is expected to grow 38% annually through 2032, so ASML should continue to see healthy demand for its EUV machines. And since it’s the only manufacturer of these machines, it’s no surprise to see its profit growth accelerate significantly next year.
So even if the company isn’t splitting its shares to reduce the value of each share, its outlook suggests it’s built for more long-term upside potential. Investors looking for a semiconductor stock playing a critical role in the AI ​​revolution can consider buying ASML Holding before its growth accelerates.
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Hard Chauhan has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends ASML and Nvidia. The Mad Motley has a disclosure policy.
Stock Split Watch: 2 Artificial Intelligence (AI) Stocks That Look Ready for a Split was originally published by The Motley Fool
