Back in the dot-com boom, stock splits became commonplace in response to rising share prices. Amid the current artificial intelligence (AI) boom, a similar pattern could be developing. Several AI companies have already split their stocks, and more splits could be on the way among other high-priced stocks.
Investors should understand that stock splits They do not fundamentally change the value of a stock or the underlying business, but typically follow significant appreciation in the stock price and signal management's confidence that the stock can continue to rise.
There is also evidence, according to a Bank of America study, that stocks perform better in the year after the split. While there is no guarantee that a given stock that was split will outperform the S&P 500 Indexprovides historical evidence that the average stock split does. In that sense, these three AI stock splits look like long-term winners.
1. Nvidia
Nvidia (NASDAQ: NVDA) At this point, there’s no need to introduce it. The AI chip superstar has been setting the pace for the sector, gaining roughly 700% since the start of 2023. Nvidia’s most recent stock split (a 10-for-1 split) took effect after the market closed on June 7, and shares have been down since.
Nvidia continues to show significant upside potential, even as its market cap hovers around $3 trillion. The company has a huge lead in data center GPUs, the next-generation chips needed to power AI models like ChatGPT, and its lead seems likely to widen following the launch of chips built on its new Blackwell platform in the fourth quarter.
What's more, the company is on track for continued rapid growth: Revenue increased 122% year-over-year in its second fiscal quarter 2025 to $30 billion.
While some investors are concerned about the possibility of a bubble in the AI sector, there is still plenty of evidence that demand for Nvidia components is increasing. The latest anecdote that supports that theory: reportedly, Oracle Founder Larry Ellison and Tesla CEO Elon Musk recently invited Nvidia CEO Jensen Huang to dinner so they could personally beg him to sell more GPUs to their companies.
Given its entrenched competitive advantages, growing demand for its products, and a long road ahead in generative AI, Nvidia still looks like a smart buy.
2. Supermicrocomputer
Supermicrocomputer (NASDAQ: SMCI) is another AI stock that has had a runaway success. Like Nvidia, its revenue has soared, up 144% in its most recent quarter to $5.31 billion. However, the company’s gross margin shrank, hurting earnings, and the market sent the stock tumbling.
Later, Supermicro’s stock plummeted after a short-seller attacked the company, and management said its annual 10-K report would be delayed. CEO Charles Liang responded to the short-seller’s allegations, saying that the business remains strong. Importantly, he also said that despite the delay in filing, the company does not anticipate any material changes to its financial results from what it previously reported.
Supermicro is known for making high-density servers that perform especially well in AI applications, and it dominates the liquid-cooled AI server market, giving it a competitive advantage.
One good reason to buy shares now is Supermicro's valuation. It currently trades at a price-to-earnings ratio of just 22, which seems drastically undervalued, assuming neither of those two factors matter.
Supermicro's 10-for-1 stock split is scheduled for Oct. 1. That event could be a catalyst for the stock to rally.
3. Broadcom
Broadcom's (NASDAQ:AVGO) The business is diversified into cybersecurity, virtualization software, semiconductors and network infrastructure. It doesn’t have the same level of exposure to AI as Nvidia and Supermicro, but it is seeing growing demand due to new technology, thanks in part to its custom switches, networking solutions and accelerators for AI data centers.
Chief Executive Hock Tan said he expected the company's AI revenue to hit $12 billion this year, about a quarter of its total sales.
The tech giant also has a long track record of successfully growing its business both organically and through acquisitions, where it typically cuts costs to boost profits. In its most recent fiscal quarter, the company reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $8.2 billion, representing 63% of its total revenue, a share almost as good as Nvidia's.
Broadcom performed a 10-for-1 stock split on July 12, and its stock has been on a downward spiral ever since, along with the rest of the AI sector. Broadcom currently trades at a price-to-earnings ratio of 37, a reasonable level for an AI leader whose profitability should improve as it completes the integration of its massive VMware acquisition.
All three AI stocks have performed well and look poised to continue doing so. With strong competitive advantages, huge growth opportunities, and affordable valuations, they all look like smart long-term investments.
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Bank of America is an advertising partner of The Ascent, a Motley Fool Company. Jeremy Bowman The Motley Fool has positions in Bank of America and Broadcom. The Motley Fool has positions in and recommends Bank of America, Nvidia, Oracle, and Tesla. The Motley Fool recommends Broadcom. The Motley Fool has a Disclosure Policy.
3 actions with artificial intelligence (AI) that could help you improve your life Originally published by The Motley Fool
