Investors love a good stock split, and here's why. While these maneuvers don't change the value of a company, they do bring down the per-share price of high-flying stocks, making the purchase of full shares more accessible to a broader range of investors.
In a 10-for-1 stock split of a stock trading for $1,000, for example, you would only have to invest $100 to get a share of the company post-split. The company has more shares selling for a lower price, but its overall market cap has not changed and individual investors still own the same dollar amount of stock. When a company splits its stock, it also shows a certain degree of optimism about the future, with the idea that the stock will once again take off and even potentially return to earlier levels.
Stock splits have flourished in recent times, led by major companies across industries. And the tech industry, which accounted for a great deal of stock gains in the first half of the year, has been a big part of the story. Among these companies are two leading artificial intelligence (AI) players, Nvidia (NVDA 1.56%) and Super Micro Computer (SMCI 0.48%).
Nvidia completed a 10-for-1 split in June, and Supermicro recently announced a 10-for-1 split, with the stock to begin trading at its new price as of Oct. 1. Both of these players have soared over the past few years thanks to their dominance in the AI market and make great long-term buys -- but which one is the better buy today?
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The case for Nvidia
Nvidia is the global leader in AI chips, holding an 80% share, but it hasn't stopped there. The tech giant has expanded its offerings to include a huge suite of AI products and services, and has reached into new growth areas such as enterprise software and sovereign AI. All of this has helped Nvidia grow revenue and net income in the triple digits quarter after quarter and reach gross margin of more than 70%.
NASDAQ: NVDA
Key Data Points
This isn't likely to end anytime soon as demand for AI is in its early days, with predictions for today's $200 billion market to reach $1 trillion by the end of the decade. On top of this, Nvidia is a true innovator, pledging to update its graphics processing units (GPUs) on an annual basis.
And right now, we're just weeks away from a key launch. Nvidia plans to ramp production of its new Blackwell architecture and its highest-performing ever GPU in the coming months. The company even predicts billions of dollars in revenue from this platform in the fiscal quarter ending in January. Demand already is surpassing supply -- and the world's top tech companies are Nvidia's biggest customers -- so there's reason to be optimistic about Nvidia holding on to its chip leadership.
The case for Supermicro
Supermicro benefits from the latest innovations of Nvidia and other top chip designers as well as its own. The company is an equipment maker -- developing everything from workstations to servers -- and includes the latest chips from Nvidia and others in its products. In fact, Supermicro works hand-in-hand with chip leaders so that it can immediately integrate their innovations into its equipment.
NASDAQ: SMCI
Key Data Points
All of this means the launch of Nvidia's Blackwell should boost Supermicro's earnings, too. Supermicro has delivered exceptional growth, five times greater than the industry in the past 12 months, it says,, thanks to its strategy of working closely with chip designers and using a building-blocks technology approach. By building blocks, I mean most of the company's main products include similar parts, making it fast and efficient to tailor a product to a customer's needs.
This has helped Supermicro's earnings to soar. And now, even more growth may be ahead as Supermicro's direct liquid cooling (DLC) technology solves one of the biggest problems facing data centers: the heat generated by AI projects. Supermicro expects 25% to 30% of new data centers to use DLC in the coming 12 months and that most of this will be provided by Supermicro.
Nvidia or Supermicro?
It's clear that, as long as demand for AI products and services keeps growing, Nvidia and Supermicro will benefit. And the companies both have established solid earnings and share performance track records. The one thing that sets them apart right now is valuation. Nvidia trades for 38 times forward earnings estimates, while Supermicro trades for only 12 times estimates.
Earlier in the year, their valuations were similar -- and at one point Supermicro was even more expensive. Recently, though, two pieces of news have weighed on the equipment maker. Short-seller Hindenburg Research issued a report alleging troubles at Supermicro, and, separately, Supermicro delayed the filing of its 10-K annual report. From what we know so far, I don't see these as issues that change Supermicro's long-term story -- and that means Supermicro looks dirt cheap, making it the better buy right now.
