The stock market is red-hot. The S&P 500 crossed 5,000 for the first time ever; the Dow Jones Industrial Average is making new all-time highs regularly.
Meanwhile, the Nasdaq Composite, the most tech-heavy of the major indexes, is riding a wave of artificial intelligence (AI) optimism right into the stratosphere. Over the last 12 months, that index is up 33%.
With so many new highs being made, some stock prices have reached towering heights. So let's talk stock splits and cover three stocks -- Super Micro Computer (SMCI +3.33%), Nvidia (NVDA +0.48%), and Meta Platforms (META 1.12%) -- that are ready.
Image source: Getty Images.
The hottest AI stock around looks primed for a first-ever split
Jake Lerch (Super Micro Computer): If I had to pick one stock as the mascot for the current bull market, it just might be Super Micro Computer. Its shares generated a mind-blowing total return of 774% in the last 12 months.
NASDAQ: SMCI
Key Data Points
To put that in context, it's taken Microsoft (which is no slouch regarding stock performance) the last eight years to generate a similar total return.
Super Micro Computer's rapid rise has seen its stock price shoot up from around $86 a share to over $880. That, my friends, is a recipe for a stock split. The company has never conducted a stock split in its 17 years as a public company. However, with its stock price closing in on $900 a share and investor interest surging, it might be time.
The company's near-term prospects look spectacular as the AI revolution drives up demand for its off-the-shelf server racks -- one of the primary building blocks for AI data centers. The company reported exceptional earnings results a few weeks ago, lifted its full-year guidance, and provided highly upbeat commentary in a post-earnings conference call.
In short, given the stock's amazing run, now could be the right time for Super Micro Computer to perform its first stock split -- a development many investors would cheer.
AI chip dominance has taken this stock's share price into the clouds
Will Healy (Nvidia): Amid the generative AI boom, Nvidia has been on a tear. Over the last year, the stock has risen almost 240% as demand for chips designed for AI workloads has boomed. That took the share price to around $740 per share as of the time of this writing.
Coincidentally, that places its price near where Nvidia last executed a 4-for-1 stock split, in July 2021, with the stock up nearly 300% since then.
Along with the company's current stock price, Nvidia's market positioning and growth appear to make a case for another split. It has an estimated 85% market share in the high-end AI chip market, according to an analyst at Raymond James. Moreover, Allied Market Research estimates a compound annual growth rate of 38% for the AI chip market through 2032.
Given such numbers, it should come as little surprise that its revenue for the third quarter of fiscal 2024 (ended Oct. 29) rose 206% yearly to more than $18 billion. With that, the gross margin surged to 74% versus 54% in the year-ago quarter, when operating expenses rose by 16%.
Consequently, Nvidia's net income of over $9.2 billion rose by nearly 14 times! Amid such increases, its P/E ratio of 97 has not deterred investors from bidding the stock higher.
Additionally, Nvidia may have another less discussed reason for wanting a split. At a market cap of $1.8 trillion, it has arguably become the market's most essential semiconductor stock. A lower nominal share price would make it a leading candidate for inclusion in the Dow Jones Industrial index. The Dow is a price-weighted index, and Nvidia's addition would add to its prestige and investor interest, serving as yet another positive catalyst.
Indeed, when it comes to semiconductor stocks, none appears better positioned than Nvidia. And with its continuing growth prospects and history, a stock split could make it more appealing to prospective buyers and indexes alike.
A stock split could potentially keep Meta's red-hot momentum going
Justin Pope (Meta Platforms): In late 2022, when shares were just $89, most investors probably didn't have a possible stock split for Meta Platforms on their bingo cards. But Wall Street will soon wrap up Q1 of 2024, and the stock is quickly running toward $500. This epic comeback is no fluke. The stock on fire since overcoming adversity in its advertising business and cutting expenses to get its profits back on track.
Lost in the stock's ups and downs were two consistent truths. First, Meta's three-headed monster of social media apps, Facebook, Instagram, and WhatsApp, never stopped growing. Monthly active users rose from 3.71 billion in Q3 of 2022, when the stock bottomed, to 3.98 billion today. That doesn't seem like much, but half the world's population is on these apps, and Meta's audience is still rising at a meaningful pace.
Second, Meta has continually invested in building computing systems for the company's long-term AI ambitions. Meta is already using AI to grow its advertising business, and the consumer-facing nature of Meta's apps gives the company tons of room for innovation over time.
NASDAQ: META
Key Data Points
Stock splits don't change a company's fundamental valuation. Fortunately, Meta's forward P/E of 23 is attractive if the business delivers the 20% annualized earnings growth analysts expect. If Meta does split its stock, the numbers make it a stock split you can confidently buy and hold for the long term.
