One of the more interesting developments in the investing space over the past several years is the reemergence of stock splits. The once-common practice had diminished in popularity but has experienced a renaissance in recent years. Companies will generally take this path after years of strong results make the stock price less accessible to everyday investors. A stock split creates more shares trading at a lower price; it doesn’t change a company’s market cap.
Newton’s first law of motion states that an object in motion tends to stay in motion unless acted upon by an outside force. That same principle could easily be applied to investing in successful companies. Those that enact stock splits see share price increases of 25%, on average, in the year following the announcement, compared with 12% gains for the S&P 500, according to data compiled by Bank of America analyst Jared Woodard.
Here are three stock-split stocks with as much as 148% upside ahead, according to certain Wall Street analysts.
Nvidia: Implied upside 62%
Arguably, the most celebrated stock-split stock in recent memory is Nvidia (NASDAQ: NVDA), and the chipmaker still has a boatload of potential. It’s the leading supplier of graphics processing units (GPUs) used to zip data through the ether for data centers, cloud computing, and artificial intelligence (AI). This business has eclipsed its humble roots generating lifelike images in video games.
For its fiscal 2025 first quarter (ended April 28), Nvidia generated record revenue that surged 262% year over year to $26 billion, resulting in diluted earnings per share (EPS) that soared 629% to $5.98. The results were driven by data center revenue — which includes cloud and AI chips — as revenue for the segment rose 427% to $22.6 billion. That marked the fourth consecutive quarter of triple-digit sales and profit gains.
It’s little wonder that results of that magnitude have supercharged Nvidia’s stock price, which has gained nearly 800% since the start of 2023, resulting in its high-profile 10-for-1 stock split in June. However, some on Wall Street believe that’s just the tip of the iceberg. Rosenblatt analyst Hans Mosesmann maintains a buy rating on Nvidia and a Street-high price target of $200, which represents potential upside of 62% compared to Thursday’s closing price.
The analyst cites Nvidia’s accelerated development cycle and track record of innovation as evidence there’s more upside to come. “We see Nvidia’s Hopper, Blackwell, and Rubin series driving ‘value’ market share in one of Silicon Valley’s most successful silicon/platform product cycles,” Mosesmann wrote in a note to clients.
He isn’t alone in his bullish outlook. Of the 59 analysts who offered an opinion in July, 54 rated the stock a buy or strong buy, and none recommended selling.
I believe the analyst hit the nail on the head. Nvidia’s customers have reported they’re ramping up capital expenditure spending on AI, which directly benefits Nvidia. Furthermore, partners have reported bullish results, which suggests the AI revolution is ongoing. To me, this is compelling evidence that Nvidia stock has further to climb.
MicroStrategy: Implied upside 61%
The second stock-split stock with significant upside is MicroStrategy (NASDAQ: MSTR), which split its stock earlier this month. The company provides subscription-based AI-fueled business analytics software that allows non-technical users to gain actionable insights from their data. MicroStrategy also provides cloud-based services to government entities.
What sets the company apart, however, is its Bitcoin strategy, which is really turning heads. MicroStrategy bills itself as “the largest corporate holder of Bitcoin and the world’s first Bitcoin development company.”
For the second quarter, subscription services revenue climbed 21% year over year, though total revenue declined by 7%, and its operating loss increased more than sevenfold. However, MicroStrategy made much more progress on the Bitcoin front, increasing its holdings to 226,500 Bitcoins, worth more than $13 billion as of this writing, well ahead of its cost basis of $8.3 billion.
Despite the company’s risky strategy, some on Wall Street remain bullish. Benchmark analyst Mark Palmer has a buy rating on MicroStrategy, with a split-adjusted, Street-high price target of $215. That represents potential upside of 61% compared to Thursday’s closing price. The analyst says that while the company has its detractors, since adopting its Bitcoin strategy four years ago, MicroStrategy’s stock price has soared nearly 1,000%, far outpacing the returns of Bitcoin itself, which has gained 413%. This no doubt played into the company’s 10-for-1 stock split earlier this month.
Wall Street is clearly in agreement. Of the seven analysts who covered the stock in July, every one rated it a buy or strong buy, and none recommended selling.
For investors who believe that Bitcoin will hold its value and continue to gain ground over time, MicroStrategy’s strategy is sheer brilliance. However, it’s important to remember that as recently as late 2022, Bitcoin lost as much as 75% of its value. An investment in MicroStrategy could be equally volatile.
I believe MicroStrategy offers a compelling opportunity for investors with an appetite for some volatility and a long investing time horizon. That said, I also believe there’s a certain degree of risk and that MicroStrategy should represent a small part of a balanced portfolio.
Super Micro Computer: Implied upside 148%
The last of my trio of stock-split stocks with a boatload of potential is Super Micro Computer (NASDAQ: SMCI), also known as Supermicro. The company is one of the premier providers of custom servers in the industry, backed by more than three decades of experience.
Supermicro made the jump to the big leagues thanks to robust demand from those wanting to join the AI revolution. However, it was the company’s building-block architecture, energy efficiency, and direct liquid cooling that boosted demand for its rack-scale servers, as the devices could be customized to the user’s needs while still providing power efficiency and withstanding the harsh demands needed to run AI models.
In its fiscal 2024 fourth quarter (ended June 30), Supermicro reported record revenue that soared 143% year over year to $5.3 billion, which marked an increase of 38% sequentially. This generated adjusted earnings per share (EPS) that jumped 78% to $6.25. This marked the company’s third consecutive quarter of triple-digit gains.
Supermicro’s consistently robust growth has sent its stock price into the stratosphere, delivering gains of 637% since early last year, which likely factored into the company’s decision to announce a 10-for-1 stock split earlier this month.
Wall Street believes there’s more upside ahead. Loop Capital analyst Ananda Baruah is among the biggest bulls, with a buy rating on the stock and a Street high price target of $1,500. That represents potential gains for investors of 148% compared to Thursday’s closing price.
The analyst believes Supermicro has much greater sales potential than Wall Street is giving the company credit for, estimating its revenue run rate will climb to $40 billion by the end of fiscal 2026. For context, Supermicro generated revenue of less than $15 billion in fiscal 2024. The analyst’s forecast also aligns closely with management’s guidance, which calls for net sales of roughly $28 billion for fiscal 2025.
Wall Street seems to agree. Of the 17 analysts who covered the stock in July, 11 rated the stock a buy or strong buy, and none recommended selling.
I’m completely on board with this analyst’s take. The company continues to take market share from its larger rivals, further accelerating its growth, and has a pole position in the AI revolution.
Should you invest $1,000 in Nvidia right now?
Before you buy stock in Nvidia, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $758,227!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of August 22, 2024
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Danny Vena has positions in Bitcoin, Nvidia, and Super Micro Computer. The Motley Fool has positions in and recommends Bank of America, Bitcoin, and Nvidia. The Motley Fool has a disclosure policy.
3 Stock-Split Stocks to Buy Before They Soar as Much as 148%, According to Select Wall Street Analysts was originally published by The Motley Fool
Source: finance.yahoo.com