Super Micro Computer (SMCI 0.50%) is a key behind-the-scenes player in the potential artificial intelligence (AI) revolution. The company makes the servers, storage systems, and full rack scale solutions needed by AI projects -- and demand for these products has been climbing, supercharging the company's earnings.
This job in the shadows has put Supermicro in the spotlight in recent times as investors search for possible AI winners -- leading the shares to skyrocket. In fact, Supermicro stock has soared more than 700% over the past year and recently surpassed $1,000 before pulling back to just under that level. When stocks start approaching the $1,000 mark, the natural question often is: Will the company announce a stock split? So, today, it's natural to wonder if such an operation may be the next move for this top AI player.
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Why a stock split is a good idea
First, let's talk a little bit about why a stock split may be a good idea. A stock split involves a company offering more shares to current shareholders to bring down the price of each individual share. The market value of the company and the value of your holding remain the same -- but the price of each share will be lower according to the ratio of the split.
So, for example, if a company announces a 10-for-1 stock split, and the original price of the stock is $1,000, after the operation the stock will be priced at $100 -- and if you originally held one share, you now would own 10.
The advantage of a split -- for the company and for investors -- is it makes the stock more accessible for a broader range of investors. Yes, investors can get in on a high-priced stock through fractional shares, but some brokerages don't offer them. And some investors simply prefer investing in at least one full share. This means a stock split could encourage more investors to take a position in a particular company.
All of this means a stock split could be a great move for Supermicro. But will it happen? History doesn't offer us a clue. Supermicro has never split its stock before, but it didn't have to -- as recently as 2018, the stock traded for a little more than $10.
Last month, Supermicro made a move that actually resulted in a dip in its share price, pushing it down from its record high. The company announced the sale of 2 million shares and aims to use proceeds to support regular operations such as buying inventory and boosting research spending. Since, Supermicro shares have recouped some losses, but haven't yet returned to $1,000 territory.
NASDAQ: SMCI
Key Data Points
Supermicro's business is booming
Still, Supermicro's business is booming, and the next earnings report or other positive sales news could spur additional gains for the stock. In the most recent report, the company announced its first $3 billion quarter ever. Supermicro saw ongoing record demand for AI systems at rack scale and said the AI boom may continue for years to come.
This tech player closely tracks new releases of products from top chip companies such as Nvidia and Intel so that they can be immediately integrated into Supermicro's systems. And this means recent and upcoming launches from these players -- such as Nvidia's announcement of its Blackwell architecture and chips later this year -- should spur sales gains at Supermicro, too.
So, there's plenty of reason to believe Supermicro's shares could be heading back to $1,000 and beyond. At that level or even at today's price of more than $900, Supermicro makes a great candidate for a stock split. These operations generally don't result in share price gains for a company -- since they're mechanical movements and don't change the company's fundamentals. But making a particular stock more accessible for a broad audience is positive, and this accessibility could help the stock progress over time.
I don't think Supermicro will announce a split right this moment as management still may be focused on the recent share sale, but it could be one of the company's next moves -- especially if the stock continues to gain ground in the coming weeks.
