After Nvidia set the market abuzz with its stock split announcement on May 22, the trajectory of AI stocks seems poised for exciting times. This move has seen share prices surge by an impressive 36%, a testament to the stock’s soaring appeal. The repercussions of Nvidia’s decision have rippled through the AI landscape, prompting speculation about the potential for other players to follow suit.
It’s essential to note that a stock split is merely a cosmetic makeover; it doesn’t alter a company’s essence or financial foundation. Rather, it subdivides shares into more units, each carrying a correspondingly adjusted price and financial metrics. Firms undertake splits for varied reasons, such as enhancing trading accessibility for employees receiving stock options in lieu of compensation and appealing to a broader investor base.
With Nvidia recently completing its stock split on June 10, attention naturally shifts towards other AI enterprises eyeing a similar move. In this vein, three industry pundits spotlighted Microsoft, Meta Platforms, and Super Micro Computer as potential candidates for the next wave of stock splits.
Here’s why:
Examining Microsoft’s Potential Stock Split Prospects
Will Healy (Microsoft): Microsoft, a stalwart in the tech realm, stands as a promising contender for a stock split. Despite basking in massive stock appreciation in recent years, the tech juggernaut has astonishingly refrained from a split for over two decades.
The era between the late 1980s and early 2000s witnessed Microsoft’s meteoric rise, marked by nine stock splits. However, the subsequent upheavals like the Dot-Com bubble burst and Apple’s ascendancy gradually eroded its dominance, culminating in a 37% decline in stock value during Steve Ballmer’s tenure from 2000 to 2014.
Satya Nadella’s ascendancy as CEO in 2014 heralded a renaissance for Microsoft, pivoting it towards cloud computing and AI eminence. Over Nadella’s tenure, Microsoft shares have surged over 1,110%, scaling to $440 per share as of present.
The mounting stock appreciation spells an imperative for a split. Microsoft’s stellar performance, with a 26% year-over-year net income surge in the fiscal year’s initial three quarters ending March 31, foreshadows sustained stock price growth. An optimistic revenue growth outlook signals further bullish momentum.
Moreover, Microsoft’s inclusion in the Dow Jones Industrial Average underscores the necessity for a split to avert disproportionate influence on the index due to its price-weighted dynamics. Thus, an end to the protracted 21-year stock split hiatus appears on the horizon.
Meta Platforms Contemplates a Debut Stock Split Move
Jake Lerch (Meta Platforms): The narrative of 2024 echoes triumph for the “Magnificent Seven” stocks, with six registering double-digit gains, barring the unsplit shares of Meta Platforms. The time seems ripe for Meta’s maiden split, ushering in a new chapter for the stock.
At the outset, the lofty valuation of Meta shares, hovering around $504 each, beckons attention. Amid this pricing stratum lies the barrier to entry for many retail investors. A strategic split like a 3-for-1 or 5-for-1 could significantly slash share prices, broadening accessibility for retail investors unable to dabble in fractional shares, potentially anchoring the price within $100 to $175.
A recent survey from Bank of America highlights another compelling rationale for Meta’s splits: performance superiority. The research, scrutinizing stock splits since
The Impact of Stock Splits on Market Performance
Stock Splits: A Historical Perspective
Back in 1980, a study revealed that stocks that undergo splits tend to outperform the S&P 500 in the following 12 months. This trend has held true over the last four decades, as shown in the chart below.
Meta Platforms: A Different Stance on Stock Splits
While many investors may speculate on a potential stock split from Meta Platforms, the company’s management has never favored this strategy. Meta has been averse to stock splits throughout its 12-year history as a public entity. This stands in stark contrast to tech giants like Adobe and Microsoft, which have resorted to splitting shares multiple times in their first 12 years of going public.
Regardless of a stock split, Meta Platforms remains a top performer in the tech sector, largely due to its robust digital advertising business. With a 27% year-over-year revenue growth in Q1 and a soaring 127% increase in earnings, long-term investors see potential in Meta as a valuable buy-and-hold option.
Super Micro Computer: Potential for a Stock Split
Super Micro Computer, often overshadowed by Nvidia in the AI sector, could revitalize its trajectory through a stock split. Despite a stagnation in share prices after hitting a peak, the company, known as Supermicro, continues to attract attention for its modular server systems tailored for data centers. As AI investments surge, Supermicro’s revenue growth has skyrocketed to 200% year over year.
Analysts point towards a promising future for Super Micro Computer, anticipating a doubling of annual revenue to over $23 billion by the next year. Earnings are also expected to witness a robust 52% annual growth over the next few years, indicating a strong fundamental backing for potential stock appreciation. Currently trading at a favorable forward P/E of 33, Super Micro Computer presents an enticing opportunity for investors.
Considering the substantial appreciation of shares by over 9,400% since its IPO, a stock split could make the stock more accessible to investors, especially as it trades above $800 per share. Employee equity holders could benefit from improved liquidity, and positive market sentiment from a split could reignite momentum in the stock price.
Investing in Microsoft: Exploring Opportunities
Amid discussions around stock splits, investors are pondering the prospects of investing in Microsoft. While the company was not among the recently highlighted top 10 stock picks, it continues to be a prominent player in the market. A stock split could potentially drive renewed interest in Microsoft, leveraging its solid positioning in the tech industry.
Reflecting on past successes like Nvidia, where a $1,000 investment in 2005 resulted in significant returns, investors are encouraged to consider the potential of long-term investments in reputable companies. Services like Stock Advisor offer valuable insights and recommendations for investors looking to build a robust portfolio.
