Stock splits are causing a lot of commotion in the investment world, especially among the amateur public. You probably already know that a split has no impact on the underlying value of the company. If you have one share worth $100 and the company does a 10-for-1 split, you have 10 shares worth $10 each for the same value of $100.
However, there are some benefits to lowering per share prices. For example, it is easier for smaller investors to build a position. Suppose you deposit €300 into an account every month; it is easier to gain a position in a stock selling for $100 than for $2,000. The announcements also draw attention to the company, which may be able to help.
Nvidia is the latest major tech company to announce a split (the second in the past three years). The stock split 10-for-1 last week after an incredible run in previous years, as shown below. But Nvidia isn’t the only company with a rising stock price. The rise of artificial intelligence (AI) sent several other stocks to record highs.
Could any of the companies below be the next to split their shares?
Super microcomputer
Let’s take a look first Super microcomputer (NASDAQ: SMCI), which trades above $750 per share. This is well below the 52-week high of $1,229, but well above the 52-week low of $213. Supermicro (as it’s known) is an essential part of the AI sector, as its server, storage, and networking hardware are critical to data centers, edge computing, and more.
Intense customer demand, mainly driven by AI, recently caused revenue and operating income to skyrocket, as shown below.
The company’s last quarter saw 200% year-over-year revenue growth to $3.9 billion, and Supermicro expects the intense growth to continue next quarter with a forecast of $5.1 billion to $5.5 billion. The great thing about this revenue growth is that Supermicro is doing it profitably, as you can see from the rising top line in the chart above. Data center growth is a tailwind that should last for years (check out this article for more information).
If the share price remains high, the company could proceed with a stock split – possibly soon.
Service now
Companies are turning to automation like never before. Automating tasks is crucial for efficiency, which is of utmost importance in the hyper-competitive business world. With the Now Platform from Service now (NYSE: NOW)customers get virtual customer service agents, process automation and AI-based solutions for problem detection, routing and troubleshooting.
ServiceNow has a growing customer base of over 8,100, including 85% of the Fortune 500. This includes nearly 2,000 major customers who spend an average of $4.6 million annually with ServiceNow. The company also boasts a 98% renewal rate. Like Supermicro, ServiceNow’s revenue and operating profits are soaring, as shown below.
The above $9.5 billion in trailing-twelve-month sales includes $2.6 billion in the first quarter, up 24% year-over-year. ServiceNow’s stock price has followed suit, trading near $700 per share. If the stock price remains high, ServiceNow could follow other tech companies and consider a split.
In the grand scheme of the stock market, stock splits don’t have much consequence. They serve investors best by keeping most stocks within the same relative range. It would complicate matters if all companies did that Berkshire Hathaway did; the stock is trading for more than $600,000 per share after decades of growth without a split (although investors can still buy the Class B shares much cheaper).
Still, stock splits attract attention, open up the market to smaller investors and make for fun talking points. Nvidia is the latest titan to split; more could follow soon.
Should You Invest $1,000 in Super Micro Computer Now?
Consider the following before buying shares in Super Micro Computer:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Super Micro Computer wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $740,886!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns June 10, 2024
Bradley Guichard has positions at Nvidia. The Motley Fool holds positions in and recommends Berkshire Hathaway, Nvidia, and ServiceNow. The Motley Fool has a disclosure policy.
Two Artificial Intelligence (AI) Companies That Could Follow Nvidia’s Lead and Split Their Stocks was originally published by The Motley Fool
