Stock splits were commonplace in the late 1990s, but the practice fell out of favor and faded into near obscurity. In recent years, however, stock splits have experienced a resurgence as a means to keep popular and high-flying stocks accessible to the masses.
Furthermore, the advent of artificial intelligence (AI) and strong corporate results have fueled a robust bull market that just surpassed its third anniversary, driving share prices to highs not seen in years. Don't take my word for it: The Dow Jones Industrial Average (^DJI 0.09%), S&P 500 (^GSPC 0.16%), and Nasdaq Composite (^IXIC 0.59%) have all hit record highs in recent months, and there's likely more to come.
Ryan Detrick, chief market strategist at financial services company Carson Group, has analyzed the data, which shows that bull markets lasting longer than three years continue to climb, lasting eight years, on average, with even the shortest lasting five years.
With that as a backdrop, let's look at two unstoppable stocks that have soared over the past two years but are still buys right now, according to Wall Street.
Image source: Getty Images.
1. Broadcom: Up 337%
The AI revolution continues to gain steam, but is beginning to expand its reach. Graphics processing units (GPUs) were the early chip of choice to power the large language models (LLMs) that underpin AI. However, as the use of AI continues to evolve, so too do the needs of its users. For example, while GPUs are unrivaled in terms of speed and flexibility, this comes at a cost of high energy consumption.
That's where Broadcom (AVGO 5.65%) comes in. The company provides application-specific integrated circuits (ASICs) that are being hailed as a viable alternative to power-hungry GPUs. ASICs are specialized semiconductors that can be customized to be highly efficient when performing a specific task -- hence the name -- and therefore be more energy efficient for those use cases.
Broadcom recently forged a multibillion-dollar deal with ChatGPT creator OpenAI to supply 10 gigawatts of ASICs over the next four years. This could be just the beginning, as the company is "deeply engaged" with other hyperscalers to supply them with these specialized chips. In all, Broadcom believes its AI opportunity will climb to between $60 billion and $90 billion by 2027 from its existing customers, and new agreements could drive that range higher.
NASDAQ: AVGO
Key Data Points
Broadcom keeps its customer list close to the vest, but is believed to supply specialized processors to some of the biggest names in technology, including Alphabet's Google, Meta Platforms, and TikTok parent ByteDance.
Of the 47 analysts who offered an opinion thus far in December, 94% rate the company a buy or strong buy, and none recommend selling.
At more than $400 a share, Broadcom could be ripe for a stock split, especially if it continues to rise at its current rate.
At 32 times next year's expected earnings, Broadcom might seem pricey. However, the most commonly used valuation metrics struggle to value high-growth stocks. The more appropriate price/earnings-to-growth (PEG) ratio clocks in at 0.43, when any number less than 1 suggests an undervalued stock.
2. AppLovin: Up 1,780%
Once upon a time, advertising in software and apps was fraught with uncertainty, as marketers had no way to know for certain if they were getting any bang for their buck. AppLovin (APP +0.67%) was there to answer the call. The adtech company offers a suite of tools to help app developers market and monetize their apps. AppLovin is expanding its offerings, creating a new generation of solutions designed specifically for e-commerce platforms.
The company offers a number of cutting-edge tools that are leading the industry. Its Axon self-service ad platform enables users to automate and manage their creative campaigns, while AppLovin's Max supply-side platform helps connect publishers and advertisers in real time. The company's success was marked by its recent admission to the S&P 500 and a stock price surge of more than 1,700% over the past two years.
NASDAQ: APP
Key Data Points
This combination is reaping big rewards and fueling meteoric growth. In the third quarter, revenue of $1.4 billion grew 68% year over year, while its diluted earnings per share (EPS) of $2.47 surged 96%. The results were driven higher by net revenue per installation, which increased 75%. Perhaps more telling was the $1.05 billion in operating cash flow and $1.05 billion in free cash flow AppLovin generated during the quarter.
Wall Street is clearly bullish regarding the company's future prospects. Of the 27 analysts who offered an opinion thus far in December, 81% rate the company a buy or strong buy, and only one maintains a sell rec.
AppLovin stock currently sells for more than $700 per share, making it ripe for a split, particularly in light of the company's consistent mid-double-digit growth.
Like Broadcom, AppLovin defies the more common valuation metrics, selling for more than 50 times next year's expected earnings. However, its PEG ratio of 0.63 suggests the stock is attractively priced for a company growing its revenue and profits so quickly.
