Since late 2022, the evolution of artificial intelligence (AI) has been Wall Street's hottest trend. The ability for software and systems empowered by AI to make split-second decisions without the aid of humans is a game-changing technology that the analysts at PwC estimate can add $15.7 trillion to the global economy come 2030.
But AI isn't the only trend captivating the attention and wallets of investors. Excitement surrounding stock splits in influential businesses has also played a key role in sustaining the current bull market. There's arguably nothing more intriguing for investors than combining the stock market's two hottest trends: AI + stock splits.
Image source: Getty Images.
A stock split is an event that allows publicly traded companies to alter their share price and share count by the same factor without having any impact on their market cap or underlying operating performance. In particular, investors gravitate to businesses completing forward splits, which are designed to make their share price more nominally affordable for everyday investors.
Although dozens of stocks have rallied in the wake of the AI revolution and stock-split euphoria, only a very small handful of artificial intelligence companies appear primed to become Wall Street's next stock-split stocks -- one of which fairly recently enacted its first-ever split. And no, despite their impressive rallies, neither Nvidia (NVDA 3.17%) nor Palantir Technologies (PLTR 3.29%) have reached the point where their respective share prices have become prohibitive to retail investors -- so neither face of the AI movement makes the list.
CrowdStrike Holdings
The first AI stock that can strongly benefit from a forward split is preeminent endpoint cybersecurity company CrowdStrike Holdings (CRWD 4.56%). CrowdStrike hasn't split its stock since going public in June 2019, but recently had its share price briefly blow past the psychological $500 level. With nearly 30% of its shares held by everyday investors, the catalyst for a stock split is absolutely there.
NASDAQ: CRWD
Key Data Points
One of the beautiful aspects of cybersecurity from an investment standpoint is that it's evolved into a basic necessity. With businesses shifting their data and that of their customers online and into the cloud at an accelerated pace, demand for protection from third-party cybersecurity companies like CrowdStrike is only increasing. This suggests CrowdStrike's operating cash flow should be highly predictable year after year, regardless of how well or poorly the U.S. economy is performing.
On a company-specific basis, CrowdStrike's Falcon security platform has resonated with its enterprise clients. This platform leans on AI and machine learning tools to grow smarter and more efficient over time. Falcon is nimbler than on-premises security solutions, and the company's clients have demonstrated a willingness to pay a premium for it services. Historically, CrowdStrike has sustained a gross retention rate of around 98%.
Something else that's incredibly impressive about CrowdStrike Holdings has been its ability to encourage its clients to purchase additional high-margin services. As of the end of April, nearly half (48%) of its customers had purchased at least six cloud modules, with 22% buying eight or more. Subscription-driven software-as-a-service models typically generate jaw-dropping margins. CrowdStrike is delivering an 80% subscription gross margin and is targeting 82% to 85% over the long run.
The foundation has been laid for CrowdStrike stock to head higher, which puts a forward stock split squarely in sight.
Image source: Getty Images.
Broadcom
A second artificial intelligence stock that may be primed to become the next stock-split stock is something of a familiar name: networking specialist Broadcom (AVGO 2.99%). Broadcom completed its first-ever split (10-for-1) in mid-July 2024, and it's rallied back to almost $290 per share, as of this writing on July 17. Since over a quarter of its outstanding shares are held by retail investors, there may be fresh calls for Broadcom to make its stock more accessible to those who can't buy fractional shares through their broker.
Whereas Nvidia is the undisputed top choice for graphics processing units (GPUs) used in AI-accelerated data centers, Broadcom's networking solutions are among the top choices used to connect tens of thousands of GPUs in order to maximize their compute capacity and minimize tail latency. In English, Broadcom's solutions ensure rapid split-second decision-making by AI-empowered systems with minimal lag.
According to Broadcom CEO Hock Tan, a trio of hyperscale customers should account for the bulk of its AI growth through 2027. Tan estimates his company's AI sales can catapult from a reported $12.2 billion in fiscal 2024 (ended Nov. 3) to between $60 billion and $90 billion in three years.
NASDAQ: AVGO
Key Data Points
But it's important to recognize that Broadcom is more than just an AI stock. It's also one of the top providers of wireless chips and accessories used in next-generation smartphones. Further, it provides an assortment of networking and optical components for the industrial sector, as well as enterprise cybersecurity solutions.
While it's not guaranteed that Broadcom's near-parabolic climb over the last two years can continue, another stock split may be in order if it does.
Microsoft
The third AI stock that appears more than ready to become Wall Street's next stock-split stock is software legend Microsoft (MSFT 1.92%). Microsoft has completed nine splits since its initial public offering in March 1986, but last adjusted its share price for investors in February 2003. More than a third (34%) of its outstanding shares are held by noninstitutional investors.
Microsoft's AI chops are primarily tied to its applications. Azure, which is the world's No. 2 cloud infrastructure service platform by total spending, is incorporating generative AI solutions and allowing clients to build and train large language models on the platform. Azure may able to sustain or accelerate its roughly 30% growth rate with the aid of artificial intelligence.
NASDAQ: MSFT
Key Data Points
However, it's important not to forget about Microsoft's legacy platforms, such as Windows and Office. Though the growth heydays for these segments are long gone, Windows still dominates on desktops and laptops. Selling high-margin software provides significant operating cash flow that Microsoft can reinvest in faster-growing initiatives, such as cloud-computing, AI, and even quantum computing.
Speaking of cash, Microsoft is sitting on quite the treasure chest. It closed out the March quarter with $79.6 billion in cash, cash equivalents, and short-term investments, and has generated $93.5 billion in net cash from its operations through the first nine months of fiscal 2025 (its fiscal year ended on June 30). This cash affords the ability to take risks, make acquisitions, and reward shareholders via dividends and share buybacks.
With Microsoft stock surpassing $500 per share, the need for a forward stock split is growing.
