Thanks to the advent of low-cost and no-cost trading and the ability to purchase fractional shares at a growing number of brokerages, investing is no longer limited to people with large amounts of available cash. And yet, the idea of buying stocks trading at high per-share prices still makes some investors hesitate when considering a buy. That's probably part of the reason stock splits have enjoyed a resurgence in popularity.
Another reason stock splits are more popular is the onset of a new bull market, which has sent many stocks soaring to new heights and led to double- or triple-digit percentage gains over the past year or so. Some of these top performers are members of the so-called "Magnificent Seven." Here's how the group has fared since the beginning of 2023:
- Nvidia (NVDA 6.18%): Up 534%
- Meta Platforms: Up 326%
- Amazon: Up 110%
- Microsoft (MSFT 1.82%): Up 70%
- Alphabet: Up 52%
- Tesla: Up 45%
- Apple: Up 30%
To be clear, a stock split doesn't have any effect on a company's underlying value, but it does make the stock more attractive to everyday investors. Here are two Magnificent Seven stocks that have surged in price and could announce stock splits in 2024.
Image source: Getty Images.
1. Nvidia: Current price ~$927
Nvidia originally made a name for itself by pioneering the graphics processing units (GPUs) that create lifelike images in video games. In recent years, however, Nvidia's processors have lent their computational horsepower to a number of other use cases, including data centers, cloud computing, and artificial intelligence (AI). In each case, Nvidia's processors have quickly become the gold standard, outshining rivals.
Examples abound. Nvidia controls roughly 95% of the market for GPUs used in data centers, according to CFRA analyst Angelo Zino. It also dominates the market for machine learning -- another branch of AI -- with 95% of that market, according to New Street Research. Nvidia is well positioned to dominate a newer branch -- the nascent generative AI market -- as much of the processing for this segment will be done in the cloud and in data centers.
For its fiscal 2024 fourth quarter (ended Jan. 28), Nvidia generated record revenue that surged 265% year over year to $22.1 billion, driving adjusted earnings per share (EPS) up 486% to $5.16. This marked the third consecutive quarter of triple-digit year-over-year growth, and there could be more to come. For the current quarter, management forecasts record revenue of $24 billion, up 234% year over year.
While Nvidia has generated enviable growth since the beginning of 2023, stepping back a bit shows that isn't unusual. Over the past decade, Nvidia's revenue has soared 1,900%, driving net income up 8,870%. This growth has fueled the company's surging stock price, which is up more than 19,950%, with a price of $927 as of Thursday's market close. Despite that performance, Nvidia still trades for a reasonable price/earnings-to-growth (PEG) ratio of less than 1 -- the standard for an undervalued stock.
Nvidia announced its most recent stock split in May of 2021 when the stock price was roughly $600 per share -- a fraction of what it trades for now. The stock closed Thursday at a new all-time high. Based on its history, it likely won't be long before Nvidia announces another stock split.
2. Microsoft: Current price ~$409
Microsoft is best known for its ubiquitous Windows PC operating system and Office suite of productivity tools. However, it's the company's latest foray into generative AI that will likely drive growth in the years to come. The poster child for Microsoft's latest efforts is Copilot, a suite of AI-powered digital assistants designed to streamline mundane and time-consuming tasks and promise to spark a wave of increased productivity.
AI is having a halo effect on Microsoft Azure, the company's cloud infrastructure service. In the calendar fourth quarter, Azure's growth of 30% outpaced both Amazon Web Services (AWS) and Google Cloud, which grew 13% and 26%, respectively. This marked the second consecutive quarter of Azure's outperformance. Furthermore, the company noted that six percentage points of its cloud growth was spurred by demand for AI.
For its fiscal 2024 second quarter (ended Dec. 31), Microsoft's revenue grew 18% year over year while EPS climbed 33%. However, since Copilot wasn't available for general release until November, the company doesn't even have a full quarter of AI growth baked in -- and that growth is likely just getting started.
Microsoft also has a long track record of impressive growth, but it's the company's foray into AI that helped drive the stock price up 70% since the beginning of 2023. Yet stepping back reveals even more compelling results. Over the past 10 years, revenue has grown 204%, driving net income up 286% -- not bad for the world's largest company by market cap. This has driven Microsoft's stock price higher, up nearly 897%, with a price of roughly $409 as of Thursday's market close. The stock is selling for roughly 35 times forward earnings, a slight premium to the broader market, but given its track record, it's earned that premium.
To be clear, Microsoft hasn't had a stock split since 2003, and back then, the stock was trading for roughly $48 (pre-split). However, given the growth drivers ahead and the fact that Microsoft stock is trading just shy of a new all-time high, this may be the year Microsoft breaks with 20 years of tradition and splits its shares.
