Over the past 30 years, Wall Street has had no shortage of next-big-thing trends that have captivated investors. At the moment, nothing is garnering the attention of professional and everyday investors quite like artificial intelligence (AI).
AI, which involves the use of software and systems to oversee tasks normally overseen by humans, has application across almost every sector and industry. This is likely why the analysts at PwC believe AI has the potential to add $15.7 trillion to global gross domestic product by 2030.
Nvidia has become the infrastructure backbone of the AI revolution
Over the past year, megacap Nvidia (NASDAQ: NVDA) has led the charge among artificial intelligence stocks. It’s become the infrastructure backbone of the AI movement. The company’s A100 and H100 graphics processing units (GPUs) are the brains of high-compute data centers that allow for split-second decision-making by AI software and systems.
Since 2023 began, shares of Nvidia have nearly quintupled in value, with the company closing in on $1.5 trillion in added market cap, all thanks to AI. With enterprise demand particularly high for the company’s AI-accelerated chips and supply still short, Nvidia has enjoyed exceptionally strong pricing power, which has driven most of its sales increase.
But with Nvidia shares closing at $726 last week, the prospect of a stock split may begin to look all the more enticing.
A “stock split” is an event that allows a publicly traded company to alter both its share price and outstanding share count without having any impact on its market cap or operating performance. Think of it as a purely cosmetic change that can either make a company’s shares more nominally affordable for everyday investors, as with a forward-stock split, or can increase a company’s share price to ensure continued listing on a major exchange, as with a reverse-stock split. Nvidia would be looking at its second forward split in the past three years.
However, Nvidia isn’t the only high-flying AI or AI-related stock that appears primed for a potential stock split. What follows are three AI companies that could beat this GPU juggernaut to the punch and become Wall Street’s next stock-split stocks.
Meta Platforms
The first artificial intelligence stock that could beat Nvidia to the punch and become Wall Street’s next stock-split stock is none other than social media juggernaut Meta Platforms (NASDAQ: META). Meta has never conducted a stock split, but its share price climbed to near $490 this past week.
Meta is using AI in a variety of ways across its various products. In addition to helping with search and weeding out noncompliant posts made on its social media platforms, it’s leaning heavily on generative AI to help businesses tailor their ads to users.
Many of the investments Meta is making in AI and virtual/augmented reality probably won’t result in a sizable increase in sales for years. In the meantime, it continues to generate almost 98% of its revenue from advertising. The company’s social media real estate, which includes Facebook, Instagram, WhatsApp, Facebook Messenger, and Threads, is tops in the world, with nearly 4 billion collective monthly active users in the December-ended quarter. Meta should have no trouble commanding exceptional ad-pricing power more often than not.
Something else to note about Meta Platforms is that it’s a cash-flow machine. It generated more than $71 billion in net cash from operations last year, and it closed out 2023 with over $61 billion in cash, cash equivalents, and marketable securities. This treasure chest is what allows CEO Mark Zuckerberg the luxury of taking risks, which includes the development of Meta’s own AI chips.
Super Micro Computer
A second AI-fueled company that can become Wall Street’s next stock-split stock well ahead of Nvidia is server and storage-solutions specialist Super Micro Computer (NASDAQ: SMCI). Like Meta Platforms, Super Micro has never conducted a stock split. However, with its stock briefly surpassing $1,000 per share last week, a forward split is probably in consideration.
Super Micro Computer’s more-than-doubling in sales this year is a function of its highly customizable and energy-efficient rack-scale servers being in high demand. It’s also a reflection of the company relying on Nvidia’s AI-powered GPUs in its products. Businesses wanting to harness AI to expand their long-term growth potential and reach are increasingly turning to Super Micro.
What remains to be seen is if Super Micro Computer can hold onto its nearly exponential returns over the past couple of weeks. Shares ended the previous week up 183% on a year-to-date basis, and are up 878% since the start of 2023. Historically, every next-big-thing investment over the past 30 years has endured an initial bubble. This is to say that investors have a terrible habit of overestimating the uptake of new technologies or innovations. AI will likely share this fate.
The other challenge for Super Micro is going to be whether or not it can maximize demand for its rack-scale solutions in AI-accelerated data centers. Since Super Micro relies on Nvidia’s GPUs, it’s at the mercy of its suppliers. But if Super Micro can somehow meet or surpass Wall Street’s already lofty growth expectations, a stock split could well be in the cards.
Broadcom
The third artificial intelligence stock that could leapfrog Nvidia and become one of Wall Street’s next stock-split stocks is semiconductor giant Broadcom (NASDAQ: AVGO). Before Avago acquired Broadcom in 2016 and kept its name, Broadcom had completed three splits. But Avago had never split its stock. As of Feb. 16, a single share of Broadcom was setting shareholders back a whopping $1,245.
Broadcom is approaching AI inclusion a couple of ways. It’s added AI features to its Trident networking processors, and in April 2023 introduced its Jericho3-AI chip for AI networks. Jericho3 is integral for high-performance data centers in that it’s designed to connect up to 32,000 GPUs. In short, it’s designed to handle increasingly faster workloads in enterprise data centers.
One factor that’s definitely worked in Broadcom’s favor is its juicy backlog. Although CEO Hock Tan failed to provide an update on Broadcom’s backlog in fiscal 2023 (the company’s fiscal year ends in late September), the company totaled a record backlog of $31 billion in mid-2022. Wall Street and investors love large backlogs, because it typically leads to highly predictable operating cash flow.
But something investors should keep in mind is that Broadcom is generating a significant percentage of its revenue from wireless chips and accessories used in smartphones. While this segment should continue to deliver modest growth and plenty of cash flow for Broadcom, it could, ultimately, hold back the company’s overall growth rate given how large of a role it plays in net sales.
With one of the highest nominal-dollar share prices on Wall Street, Broadcom is a logical candidate to split its stock.
Should you invest $1,000 in Meta Platforms right now?
Before you buy stock in Meta Platforms, 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 Meta Platforms wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
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 tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of February 12, 2024
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Sean Williams has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms and Nvidia. The Motley Fool recommends Broadcom and Super Micro Computer. The Motley Fool has a disclosure policy.
Forget Nvidia: These 3 Artificial Intelligence (AI) Stocks Can Be the Next Stock-Split Stocks was originally published by The Motley Fool
Source: finance.yahoo.com