One of the most notable trends for investors this year is the resurgence in the popularity of stock splits. The ongoing bull market is fueling a rise in stock prices, as evidenced by stock split announcements by Chipotle and Walmart.
However, the rapid adoption of artificial intelligence (AI) is also driving up stock prices, thanks to surging sales and profits. The flag bearer for this trend is Nvidia, which announced a 10-for-1 stock split after its stock price soared 728% since the start of last year (as of market close on Thursday), which coincides with the advent of generative AI.
The speed at which AI has taken hold has boosted the fortunes of a number of companies, and the resulting share-price increases make them prime candidates for stock splits. Bank of America analyst Jared Woodard noted that many companies begin considering a stock split when their share prices surpasses $500.
A look at a few of the top-performing stocks since the start of 2023 suggests there could be more stock splits ahead over the coming year.
Image source: Getty Images.
Super Micro Computer: Current price around $778
Super Micro Computer (SMCI 0.61%), also called Supermicro, is best known for incorporating cutting-edge chips into its state-of-the-art servers, designed to withstand the rigors of AI training and inference. The company offers a variety of servers featuring free-air, liquid-cooling, and traditional air cooling, with plenty of options for companies operating anywhere along the AI spectrum.
Close-knit partnerships with the major AI chipmakers help Supermicro maintain a steady supply of the most in-demand AI chips to power its servers, and demand has been off the charts. In the company's fiscal 2024 third quarter, Supermicro generated revenue that grew 201% year over year to $3.85 billion, while its adjusted earnings per share (EPS) jumped 308% to $6.65.
The company is scrambling to expand its facilities to meet this accelerating demand. Management believes it will be able to increase production to $25 billion annually in the coming years.
During its 31-year history, Supermicro has never split its shares, but until recently, it hadn't experienced a growth spurt quite like this. Since the start of last year, the stock has soared more than 848%, but the results are even more pronounced when taking a step back.
Over the past 10 years, Supermicro's revenue jumped 799%, while net income has surged more than 2,330%. These results have fueled a stock price that soared 2,980%. Despite its blistering performance, Supermicro stock is surprisingly cheap, selling for just 2x forward sales.
NASDAQ: SMCI
Key Data Points
If growth continues along its current trajectory -- and there's every indication that it will -- Supermicro shares will be out of reach of all but the most affluent investors, save those who have access to fractional shares. That provides the company with an incentive to make its shares more accessible to everyday investors, which would result in a stock split.
Microsoft: Current price around $425
Microsoft (MSFT 0.28%) is no wallflower, thanks to its ubiquitous Windows PC operating system and Office suite of workplace productivity tools. More recently, however, the company got a jump on the competition for its early moves in the field of generative AI.
Microsoft's stake in OpenAI gave the company unfettered access to the early stages of this breakthrough technology. This, in turn, resulted in Copilot, the company's suite of AI-powered digital assistants.
These tools are deeply integrated into a broad cross-section of Microsoft's products and services, and demand for AI has ignited growth for the company's cloud infrastructure service. Revenue from Azure Cloud grew 31% year over year in the first quarter, outpacing both Amazon Web Services (AWS) and Alphabet's Google Cloud, which grew 17% and 28%, respectively, according to research firm Canalys.
For its fiscal 2024 third quarter (ended March 31), Microsoft's revenue growth accelerated to 17% year over year, while EPS climbed 20%. During its earnings call, the company noted that AI services contributed seven points of its cloud growth. This shows that AI is having a halo effect on Azure Cloud, increasing adoption.
Microsoft's track record of growth is undeniable, but recent results have made it the world's most valuable company, with a market cap of more than $3.1 trillion and driving its stock price up 77% since the start of last year. The results are even more compelling when viewed over the long term.
Over the past 10 years, revenue has grown 165%, driving net income up 376%. As a result, Microsoft's stock price has surged nearly 918%, with a current price of $425. The stock is a bit pricey at 36 times forward earnings, but given its track record and the vast opportunity ahead, it's worthy of a premium.
NASDAQ: MSFT
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The company hasn't split its shares since 2003, but that was a lifetime ago. Microsoft is currently trading just off a new all-time high, and we're seeing just the tip of the iceberg when it comes to the company's AI opportunity.
With all that as a backdrop, we may finally see another stock split from Microsoft this year.
Meta Platforms: Current price around $494
After suffering through a trough in digital ad spending during the downturn, Meta Platforms (META 0.88%) stock has come roaring back. The seeds planted during the company's cost-cutting campaign are bearing fruit, and the advertising market is staging a rebound. Meta has a long history of deploying AI in its everyday operations, but the dawn of generative AI has taken that to the next level.
Earlier versions of AI helped Meta choose more relevant content for users on its social media platforms, match up advertising with the right viewer, and tag photos, among other uses. This experience helped the company move quickly to deploy AI more extensively when generative AI came calling.
Meta developed its Llama (Large Language Model Meta AI), now on its third edition. Llama is among the leading AI systems and is available across all the major cloud infrastructure services, which pay Meta for the privilege of offering it on their platforms. This is the first in what are expected to be several new ways Meta will generate revenue from AI.
In the first quarter, Meta's revenue of $36.4 billion climbed 27% year over year, while its EPS of $4.71 surged 114%. This could be just the beginning as the recovery in digital marketing gains steam. As ad spending gathers momentum, Meta should continue to benefit.
NASDAQ: META
Key Data Points
The company is also working to help advertisers on its platform be more successful. Chief among its offerings is Meta Advantage+, a suite of AI-powered tools that has become "one of the fastest-growing ad products" in the company's history.
A test run generated a 35% increase in incremental return on ad spend and a 58% decrease in incremental cost per purchase. Not only are advertisers getting better results, but they're doing so more cost-effectively. These automated tools help simplify the creation of ad campaigns and make them more lucrative, thereby attracting and retaining more advertisers.
Since the start of last year, Meta Platforms stock has surged 310%, but that's not unusual. The past 10 years have marked a lucrative period for Meta and its investors. Revenue has grown by 1,150%, while net income surged 1,460%.
This has fueled Meta's robust stock price gains of 681%. With a stock price of roughly $494, Meta is less than 6% off its recent new all-time high set in April. Furthermore, the stock is currently selling for just 25 times forward earnings, an attractive price, considering Meta's history.
Given the company's track record of consistent performance, multiple growth drivers, and the opportunity presented by AI, this could be the year Meta finally embraces a stock split.
