Since 2023 began, excitement surrounding artificial intelligence (AI) has sent all three of Wall Street's major stock indexes to fresh record-closing highs. But while AI seemingly gets all the credit, companies enacting stock splits have quickly become one of the stock market's hottest trends.
A stock split is an event that allows publicly traded companies to cosmetically adjust their share price and outstanding share count by the same magnitude. Splits are purely superficial in the sense that they don't affect a company's market cap or operating performance.
Image source: Getty Images.
Stocks splits fall into two categories -- forward and reverse -- with investors undeniably favoring the former.
With a reverse-stock split, a company is increasing its share price, often with the goal of maintaining the minimum continued listing standards of a major stock exchange. In other words, reverse-stock splits are normally conducted from a position of operating weakness.
By comparison, companies completing forward-stock splits are purposely making their shares more nominally affordable for everyday investors and their employees. Businesses that need to conduct forward splits are usually highly innovative and out-executing their competition.
Since this year began, around a dozen high-profile companies have announced their intent to split. But not all stock-split stocks are created equally.
Based on consensus forecasts from Wall Street analysts, three "Class of 2024" stock-split stocks are expected to grow their earnings per share (EPS) by at least 151% by 2028. In other words, the following three brand-name businesses are the fastest-growing stock-split stocks on the planet!
Nvidia: Forecast EPS growth of 383% by 2028
Perhaps it's no surprise that the fastest-growing stock-split stock of them all, based on Wall Street's consensus forecast, is leading AI titan Nvidia (NVDA +1.90%). Between fiscal 2024 (ended Jan. 28, 2024), where Nvidia reported $1.30 per share in earnings, and fiscal 2029, Nvidia's EPS is expected to catapult by 383% to $6.28.
NASDAQ: NVDA
Key Data Points
There's absolutely no question that artificial intelligence is the driving force behind this otherworldly earnings growth forecast, as well as Nvidia's much needed 10-for-1 stock split, which was completed in June. In short order, Nvidia's H100 graphics processing units (GPUs) became the most-desired AI-GPUs for enterprise data centers looking to train large language models and run generative AI solutions. An analysis by TechInsights found that Nvidia had a 98% share of all AI-GPUs shipped in 2023.
CEO Jensen Huang is intent on his company maintaining its first-mover and compute advantages in AI-accelerated data centers. While most of its competitors are trying to catch up to the H100, Nvidia is readying for the launch of its next-gen GPU architecture known as Blackwell. The Blackwell platform is expected to accelerate computing in a half-dozen arenas, including quantum computing, generative AI solutions, and data processing.
Demand is another key reason Nvidia's profits and adjusted gross margin have ascended to the heavens. With demand for its hardware easily outstripping supply, Nvidia has had no trouble substantially increasing the selling price of its GPUs.
But while this forecast looks phenomenal on paper, Wall Street analysts appear to be ignoring the role history has played in next-big-thing innovations. Despite the game-changing potential of artificial intelligence, there hasn't been a single buzzworthy trend for 30 years that's avoided an early innings bubble. Professional and everyday investors have a habit of overestimating the utility of new technologies, and it's unlikely that AI will break this trend.
What's more, Nvidia's external and internal competition is picking up in a big way. Even if the company's Blackwell platform helps it to maintain its compute advantage, the GPU scarcity that's driven its pricing power into the stratosphere will ebb.
Image source: Chipotle Mexican Grill.
Chipotle Mexican Grill: Forecast EPS growth of 151% by 2028
Another of the fastest-growing stock-split stocks on the planet is fast-casual restaurant chain Chipotle Mexican Grill (CMG 1.71%). Chipotle, which completed its historic 50-for-1 forward split following the closing bell on June 25, is expected to see its annual earnings per share catapult from a reported $0.90 in 2023 to an estimated $2.26 by 2028. This would represent a cool 151% EPS growth, for those of you keeping score at home.
One reason Chipotle Mexican Grill has been able to consistently outpace its fast-casual restaurant competition in terms of organic growth is its pricing power. This pricing power derives from the company's promise to use locally sources vegetables (when cost-effective) and responsibly raised meats that are free of unnecessary antibiotics. Management has understood for a long time that customers will pay more for higher-quality food.
To build on the above point, Chipotle's success is a reflection of its menu remaining limited in size. By keeping its menu small, the company's staff can prepare food fresh every day, as well as expedite orders in its stores. Having a small menu also gives new food items more pop when they debut.
Out-of-the-box innovation has been vital to Chipotle's success, as well. In 2018, the company began introducing its digital drive-thru lanes, known as "Chipotlanes." These mobile order-dedicated lanes were a big reason for Chipotle's success during the pandemic.
NYSE: CMG
Key Data Points
Perhaps the biggest headwind for Chipotle's stock is simply the euphoria of its investors. Although Chipotle's sales jumped by 14.1% during the March-ended quarter from the prior-year period, a little over half of this growth came from new store openings. Organic growth chimed in at 7% for existing locations.
Normally, 7% organic growth for a large fast-casual restaurant chain would be fantastic. But with Chipotle valued at 40 times forward-year earnings, a 7% organic growth rate doesn't cut it. Even with its clear-cut competitive advantages, Chipotle has a lot of work to do to grow into its current valuation.
Broadcom: Forecast EPS growth of 185% by 2028
The third fastest-growing stock-split stock on the planet is none other than networking solutions specialist Broadcom (AVGO 0.45%), which completed its very first split (10-for-1) following the close of business on July 12. After reporting an adjusted $4.23 in EPS in fiscal 2023 (ended Oct. 29, 2023), Wall Street's consensus calls for a whopping $12.06 in EPS in fiscal 2028. This would work out to earnings growth of 185% over five years.
A sizable percentage of Broadcom's recent growth has come from AI -- more specifically, its AI networking ties. Last year, Broadcom introduced its Jericho3-AI fabric, which can connect up to 32,000 GPUs in high-compute data centers. Broadcom's solutions are necessary to reduce tail latency and maximize the compute capacity of the GPUs deployed, which are mostly H100's from Nvidia at the moment.
NASDAQ: AVGO
Key Data Points
There's even been rumored discussions between OpenAI, the company behind popular chatbot ChatGPT, and Broadcom about developing their own data center AI chip. With AI-GPU demand outpacing supply, the market is ripe for competitors to Nvidia's H100.
However, Broadcom has more going on than just its AI-focused operations. For instance, it's a major supplier of wireless chips and accessories used in smartphones. The 5G revolution provided the impetus for consumers and businesses to upgrade their wireless devices and take advantage of faster download speeds.
In November, we also witnessed Broadcom close its $69 billion acquisition of VMware. This deal expands its reach in enterprise software solutions and supports its multi-cloud growth strategy.
Broadcom is, by far, the cheapest of the three fastest-growing stock-split stocks, with a forward price-to-earnings ratio of 26. Thanks to its multitude of sales channels beyond AI, it would be in far better shape than Nvidia if history rhymes and the AI bubble does burst.
