Companies that split their stocks are usually experiencing phenomenal growth that has sent their share price soaring. It’s not uncommon to see a fast-growing company issue multiple stock splits over several years. For example, leading chip supplier Nvidia (NASDAQ: NVDA) has split its stock six times in the last 25 years, with two since 2021.
The most common type of split is a forward stock split in which the goal of the company is to make its share price more affordable for investors. Keep in mind, a stock split gives you more shares, but the share price is also reduced so that the value of your investment remains the same after the split.
Stock splits alone are not a good reason to invest in a company. It still comes down to looking at a company’s growth and future opportunities. If the stock is trading at a reasonable price relative to that growth, you’ve got a winner on your hands. Here are two growth stocks that recently issued a 10-for-1 split you can buy today with less than $200.
1. Nvidia
Nvidia has been one of the best-performing stocks over the last 10 years. The shares are up 24,000% since 2014. The company has split its stock twice in the last five years: a 4-for-1 split in 2021 followed by a 10-for-1 split in June of this year, bringing its share price to a more affordable $118.
The stock has been choppy over the last month as investors focus on near-term hurdles to growth. Nvidia is launching its Blackwell GPU architecture later than Wall Street expected. Nvidia is also dealing with export restrictions and increasing competition in China, although its China business grew sequentially last quarter.
Some of Nvidia’s largest customers in the U.S. are making their own chips for artificial intelligence (AI) workloads, including Amazon Web Services (AWS). There is growing demand for alternatives since Nvidia’s graphics processing units (GPUs) have been in short supply and command high selling prices.
Despite these risks, Nvidia’s revenue grew 122% year over year in the fiscal second quarter. There is currently no replacement for the general-purpose computing power of Nvidia’s GPUs. This is why Amazon and other cloud service providers are expected to adopt Blackwell next year, which can run large language models (LLMs) significantly faster and at lower cost than previous-generation chips.
Nvidia expects fiscal Q3 revenue to be up approximately 79% over the year-ago quarter. Management sees the enterprise AI wave gaining momentum across various industries, and this should lead to strong demand for Blackwell starting in fiscal Q4.
Analysts currently expect Nvidia’s earnings to increase 40% to $3.99 next year. Assuming Nvidia stock is trading at the same price-to-earnings (P/E) ratio, the stock could reach $200 by the end of 2025, representing an upside of 69%.
2. Broadcom
Broadcom (NASDAQ: AVGO) is another chip stock that has delivered exceptional returns to investors in recent years. This leading supplier of networking and software solutions for data centers issued a 10-for-1 forward split on July 15, bringing its share price down to $167.
Broadcom is well-positioned for long-term growth in the AI market. It started investing in AI around 10 years ago, and it’s paying off. In Q2, revenue from custom AI accelerators grew over threefold compared to the year-ago quarter.
Another catalyst that should benefit the stock is Broadcom’s smartphone business. It has been a key component supplier for Apple. As part of Apple’s commitment to invest $430 billion in the U.S. economy over the next five years, it made a long-term deal with Broadcom in 2023 to supply wireless connectivity and other components for Apple devices.
Broadcom could see modest upside from Apple’s iPhone 16 over the next year. Apple is expected to experience strong demand for its new iPhones, given that customers with older phones will need to upgrade to take advantage of new AI features coming to iOS. Broadcom expects 20% sequential growth in wireless revenue in Q4.
Analysts are high on Broadcom right now, since some of the risks to the business have already materialized, such as the recent sluggishness in smartphone sales. Plus, it’s got great exposure to the growth in AI infrastructure, which bodes well for its long-term prospects.
The stock is trading at a forward P/E of 27 on next year’s earnings estimate, and analysts expect the company to post annualized earnings growth of 19% over the long term. The stock should deliver excellent returns for years to come.
Should you invest $1,000 in Nvidia right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. John Ballard has positions in Nvidia. The Motley Fool has positions in and recommends Amazon, Apple, and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
2 Stock-Split Stocks to Buy Before 2025 was originally published by The Motley Fool
Source: finance.yahoo.com