Stock splits have taken the market by storm, with a broad range of companies announcing these operations to lower high-flying share prices. This is good news in general, showing these players and the market have been doing well. And the operations themselves are positive because they make it easier for a wider range of investors to buy the particular stock.
The tech world has leaped to center stage in this movement, with artificial intelligence (AI) giants Nvidia and Broadcom announcing 10-for-1 stock splits in recent times. Nvidia completed its operation on June 7, and Broadcom is set to execute its split next month. This is as shares of both companies soared well beyond $1,000, a price that — even if valuation looks reasonable — may represent a psychological barrier for some investors.
Now, investors are looking ahead and wondering which other top-performing technology stocks may join the stock split party. My prediction is an equipment maker, one that has seen revenue soar thanks to AI demand, may be next to launch a split. And the announcement could even come during that company’s upcoming earnings report. Let’s check out this potential stock split winner.
A stock trading for more than $800
The company I’m referring to is Super Micro Computer (NASDAQ: SMCI), a maker of servers, workstations, full rack scale solutions, and other equipment needed in AI data centers. Super Micro shares have soared more than 4,000% over the past five years, reaching more than $800 today. They actually surpassed $1,000 earlier this year but have since come down from those record levels.
We can’t look to Super Micro’s past actions for clues about whether it may split its stock, as the company’s situation several years ago is much different from its situation today. The equipment maker has never launched a stock split — but a split wasn’t necessary throughout most of Super Micro’s 30-year history, because for much of that time, the stock traded for less than $20 a share.
Over the years, Super Micro steadily grew its revenue, but it only truly took off as the AI boom gathered momentum. Demand for Super Micro’s products soared, and this resulted in the company reporting its first $3 billion quarter this year — that was the amount of revenue it generated in a full year as recently as 2021.
Today, it’s logical to imagine Super Micro’s stock continuing its gains and even returning to $1,000 and beyond as this AI growth story continues. The company said in recent earnings reports that demand for its full rack scale systems, including top chips from Nvidia and other market giants, has remained at record levels.
A $1 trillion AI market
And this movement probably isn’t over — for a few reasons.
First, the actual AI market is in the early days of its growth story, with analysts predicting an increase from $200 billion today to more than $1 trillion by the end of the decade. Second, Super Micro works closely with Nvidia and other chip leaders to immediately integrate their latest innovations in its products. And since Super Micro’s products share many common parts, building and customizing can be done rapidly — something customers appreciate.
Finally, Super Micro offers products equipped with its liquid cooling technology, an extremely important feature for AI data centers due to the heat created by AI processes. Super Micro chief executive Charles Liang, speaking at the recent Computex event, said he expects 15% of the company’s shipped racks this year to include liquid cooling, and that number should increase to 30% by next year, according to The Register.
So revenue has soared at Super Micro, and the future looks bright, offering the shares reason to head higher. And this means it’s the perfect moment for the company to announce a stock split, a move that allows investors with smaller budgets to invest without relying on fractional shares. Nvidia and Broadcom, when announcing their splits, both said their motive was to make it easier for employees and others to buy their shares.
And if Super Micro announces a split, the move also shows management is confident in the company’s future — and in the share price’s potential, from the new lower level, to take off once again.
Should you buy Super Micro or wait?
Considering all of this, as an investor, should you buy Super Micro now, or wait to see if my prediction is right and the company announces a split?
Though a potential split is positive, it isn’t a catalyst for share price moves and doesn’t change anything fundamental. The company’s market value and valuation remain the same — so if you wait for a potential stock split, the per-share price would be lower, but you won’t necessarily be getting a bargain. As we see in the case of Nvidia, the stock is more expensive today than it was prior to its recent stock split.
So this means if you want to benefit from the Super Micro story, there’s no reason to wait for a potential stock split to buy. Now is a great time to get in on this AI growth stock and hold on for the long term.
Should you invest $1,000 in Super Micro Computer right now?
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
Prediction: After Nvidia and Broadcom Stock Splits, This Artificial Intelligence Stock Will Be Next was originally published by The Motley Fool
Source: finance.yahoo.com