One of the most noteworthy developments over the past several years has been a resurgence in the popularity of stock splits. With the introduction of no-cost and low-cost stock trading, brokerages no longer require investors to buy stocks in round lots of 100 shares. Yet, with prices frequently between $400 and $1,000 per share, many everyday investors are more likely to buy lower-priced stocks.
This trend shows no signs of slowing, and stock splits are once again all the rage. Last year alone, a number of investor-favorite companies split their shares. Among them:
- Amazon enacted a 20-for-1 split, payable June 3, 2022.
- DexCom completed a 4-for-1 split, payable June 10, 2022.
- Shopify finished a 10-for-1 split, payable June 28, 2022.
- Alphabet executed a 20-for-1 split, payable July 15, 2022.
- Tesla implemented a 3-for-1 split, payable Aug. 24, 2022.
- Palo Alto Networks concluded a 3-for-1 split, payable Sept. 13, 2022.
Stock splits don't change the underlying value of the business, causing some investors to dismiss them as unnecessary. However, the preceding list makes it clear that businesses still believe it's important to keep shares affordable for retail investors. Furthermore, given the broader market recovery thus far in 2023, many popular stocks have risen to a level that might warrant a lower share price.
Here are three companies that could have stock splits in the near future.
Image source: Getty Images.
1. ASML Holding
After a dismal couple of years for companies in the semiconductor industry, things finally turned around for ASML Holding (ASML 2.04%). The company develops and supplies the systems used to manufacture the most advanced chips.
The accelerating adoption of artificial intelligence (AI) has supercharged its business, as chipmakers scramble to expand their operations and keep up with surging demand. This was evident in ASML's first-quarter results, as revenue of 6.7 billion euros jumped 91% year over year, while system sales surged 130%. The impact on the bottom line was even more dramatic, as earnings per share (EPS) of 4.96 euros soared 187%.
While estimates vary wildly, the rise of generative AI is expected to be genuinely transformative. Analysts at Morgan Stanley estimate the market opportunity at roughly $6 trillion, while Goldman Sachs pegs it at roughly $7 trillion by the end of the decade.
ASML's history of solid results and the growing AI opportunity pushed its stock up 31% so far in 2023. Over the past 10 years, however, the example is even more pronounced. Revenue surged 368%, while net income is up 542%. This fueled ASML's soaring stock price, which is up more than 799%, recently clocking in near $715 -- a price that's just begging to be split.
2. HubSpot
Like many technology stocks, HubSpot (HUBS -0.78%) was punished during the downturn, but the economic headwinds are abating, helping the stock recover. A pioneer in inbound marketing, HubSpot has since expanded its repertoire to include all aspects of customer relationship management (CRM).
CEO Yamini Rangan said recent advances in AI will be a growth driver for HubSpot and its customers, saying, "HubSpot is a powerful, yet easy to use ... all-in-one CRM platform powered by AI," noting that the company is integrating generative AI across its offerings. He says the company is differentiated by its "unique data and broad distribution."
HubSpot generated enviable growth even during the worst downturn in over a decade. In the first quarter, revenue climbed 27% year over year, while adjusted EPS soared 115%. Perhaps more telling is the company's expanding relationship with existing customers, as 45% of annual recurring revenue (ARR) comes from customers using three or more "hubs."
HubSpot's track record of impressive results and expanding opportunity have driven the stock 80% higher so far this year. The cumulative results since the company's public debut in late 2014 are even more impressive. Revenue soared 1,750%, sending its stock price up 1,630%, with the recent stock price above $520. HubSpot's growth spurt will likely continue, suggesting a stock split could be on the horizon.
3. Nvidia
Nvidia (NVDA 6.18%) made its fortune pioneering the graphics processing units (GPUs) that brought video game images to life. In recent years, the processors evolved and now help speed data through the ether for cloud computing and provide the computational horsepower necessary to train and run AI systems. Excitement about the widespread use cases for AI has fueled an ongoing surge in demand for Nvidia's specialized chips, ultimately driving its stock price much higher.
The move is understandable, since Nvidia currently controls 95% of the market for machine learning chips, according to data compiled by New Market Research. Its dominant position and accelerating demand show why the company is perfectly positioned to reap the rewards of this paradigm shift.
In the most recent quarter, it wasn't the company's results, but its forecast, that turned heads. Nvidia's management is guiding for revenue growth of 64% year over year and 53% sequentially, driven by growing demand for generative AI solutions.
Nvidia has a long track record of consistent growth, but excitement regarding AI propelled the stock up 190% so far in 2023. The results are even more compelling when viewed over the past decade. Revenue grew 636%, driving net income up 2,000%. This has pushed Nvidia's soaring stock price, which is up more than 11,880%, with a recent price of roughly $423.
The company's most recent stock split came just two years ago, but at this rate, Nvidia could initiate another one before the year is out.
Every rose has its thorns
While these stocks outperformed the broader market indexes over the past decade, they're by no means cheap in terms of traditional valuation metrics. ASML, HubSpot, and Nvidia are selling for 9 times, 10 times, and 20 times next year's sales, respectively, when most experts agree a reasonable price-to-sales ratio is between 1 and 2.
That said, each company has a strong record of robust performance that illustrates why they're deserving of a premium.
