In the tech space, stock-split stocks have been red hot in recent years. Companies generally opt to split their stocks because share prices reach elevated levels because of outsized investor interest. But in many cases, these companies that break up their stock structures to create more shares priced more reasonably end up continuing the buying momentum. While stock splits don't do anything to change a company's fundamentals, lowering the price of shares can make buying more appealing to a wider range of investors and increase trading volume.
Lately, the excitement surrounding artificial intelligence (AI) has pushed share prices for some top tech companies to lofty levels over the last year, and the discussion in the markets has turned to whether some of these big-name stocks will opt to carry out splits soon.
If you're in the hunt for top AI stocks that could potentially score extra momentum through an upcoming stock split, read on to see why two Motley Fool contributors believe that investing in these two potential stock-splitting companies before December is over would be a smart move.
Nvidia's stock price is high enough to consider a split
Parkev Tatevosian (Nvidia): For me, a stock split is no reason to buy a stock. However, at $462 per share, Nvidia's (NVDA +1.65%) management might want to consider splitting its stock.
NASDAQ: NVDA
Key Data Points
Nvidia is on the leading edge of AI technology while earning phenomenal profits and trading at a relatively fair valuation. A stock split could bring added attention to a stock already getting a lot of attention. The more affordable per-share price after splitting could attract more retail investors who missed out on the stock when shares were priced at more reasonable levels before its big 2023 run-up.
Nvidia is showing the benefits of investing in AI technology. Revenue increased 102% and 206% year over year in its two most recent quarters, respectively. That revenue growth brought with it improved profitability. Nvidia's operating income jumped to $6.8 billion and $10.4 billion in the two quarters. Those figures were up from $499 million and $601 million in the comparative quarters the year prior. The growth in revenue and profit has been explosive for Nvidia, thanks to AI.
Meanwhile, Nvidia's stock is trading at a forward price-to-earnings ratio of 23.6, a valuation I expect to pay for a company with less impressive performance and prospects. Nvidia's front-row position in the growth of the AI market, premium profitability, and reasonable valuation make it one stock investors can buy with enthusiasm in December.
ASML's tech is making advanced AI possible
Keith Noonan (ASML): ASML (ASML +2.22%) stock has climbed roughly 19% over the last year. Compared to the returns posted by some other influential AI companies, the semiconductor equipment leader's gains might not look like much -- but they have pushed the tech specialist's share price to levels that may be dissuading some investors.
With the stock trading at roughly $711 per share as of this writing, I think that ASML stands out as a prime candidate for a stock split. For reference, Apple announced its last stock split in 2020 -- when its stock was trading at approximately $380 per share. When Tesla announced its most recent split in 2022, its stock was trading at $864 per share.
ASML's current share price is squarely within the range where a split could make sense, but that's far from the main reason why I think that investors should build a position in the stock.
NASDAQ: ASML
Key Data Points
Even with excitement for AI surging, ASML's stock performance over the last year hasn't exactly blown past the 17% gain posted by the S&P 500 index.
Why hasn't the semiconductor equipment specialist dramatically outperformed the benchmark index? The big reason is that the global chip industry is actually going through a cyclical downturn. Despite surging AI demand, demand for chips to power mobile hardware, automobiles, and other key product categories has actually been relatively soft.
But it's important to keep the cyclical nature of the chip in mind. The overall semiconductor industry should enter another growth phase before too long -- this time with the added benefit of AI-driven demand. And ASML is perfectly positioned to benefit.
The company's lithography machines are essential for the manufacturing of the high-performance semiconductors that are powering the artificial intelligence revolution. The fabrication of Nvidia's most advanced processors would be impossible without ASML's extreme ultraviolet lithography (EUV) machines -- and patents essentially give the company a monopoly on the tech.
For investors seeking AI stocks that have plenty of long-term upside and non-prohibitive risk profiles, I think ASML has what it takes to be a great portfolio addition.
