Some companies create so much long-term value that their stock price shoots into the thousands of dollars. That makes it difficult for smaller investors to buy one entire share, so those companies often perform a stock split, which increases the number of shares in circulation and organically reduces the price per share by a proportionate amount.
Artificial intelligence (AI) is creating a staggering amount of value for a handful of companies this year. Nvidia (NASDAQ: NVDA) The shares are already up 171% in 2024, and Broadcom (NASDAQ:AVGO) The shares are up 59%. In both cases, these returns have contributed to years of stellar performance, leading both companies to announce stock splits in the past month:
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Nvidia shares recently traded above $1,200, so it executed a 10-for-1 stock split, which took effect on June 10. Investors can now buy one share for just $130.
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Shares of Broadcom are currently trading above $1,700, and it just announced a 10-for-1 stock split that will take effect on July 15. At that point, investors will be able to purchase a single share for approximately $170 (based on the current price). ).
Can Nvidia and Broadcom continue their incredible momentum into the second half of this year?
1. Nvidia
Some Wall Street analysts are calling Nvidia CEO Jensen Huang the “Godfather of AI.” No one knew it at the time, but he sparked a revolution when he hand-delivered the first AI supercomputer to ChatGPT maker OpenAI in 2016. Today, some of the world’s biggest tech companies are clamoring to get their hands on Nvidia’s latest graphics processing chips. GPUs) for the data center, which are the most powerful in the industry when it comes to AI development.
The H100 GPU is leading the way so far. During the recent first quarter of fiscal 2025 (ending April 28), this helped push Nvidia’s data center revenue 427% higher compared to the same period a year ago, to a record $22.6 billion. Triple-digit revenue growth has been a persistent theme over the past year.
Now Nvidia is gearing up to deliver a new line of GPUs built on the Blackwell architecture. For example, the GB200 will be able to derive AI models (the process of providing live data to make predictions) as much as five times faster than the H100, which will reduce costs for developers who typically spend per minute for computing resources. pay. Demand is therefore expected to be astronomical.
Nvidia has added more than $2.8 trillion from its current $3.2 trillion in market capitalization in the past 18 months alone, which is a seismic move that investors have never seen before. There are legitimate concerns that Nvidia stock has gone too far. Based on trailing-twelve-month earnings per share of $1.80 and the current share price of $130.78, it trades at a price-to-earnings (P/E) ratio of 72.6.
That’s almost twice as expensive as the iShares Semiconductor ETFwhich owns both Nvidia and a collection of its peers and trades at a price-to-earnings ratio of 37.8.
Nvidia looks more reasonable based on its future earnings, which Wall Street estimates will reach $2.52 per share in the current fiscal year 2025, and $3.36 in fiscal year 2026. That puts the stock on a forward trajectory -earnings ratios of 51.9 and 38.9. respectively. In other words, investors who buy Nvidia today will have to wait two years for the company’s earnings growth to catch up with the stock price (using the iShares ETF price-to-earnings ratio as the benchmark).
Could Nvidia post another 171% gain in the second half of 2024, just like in the first half? Considering this would take its market cap to a stratospheric $8.6 trillion, making it more valuable than Microsoft And Apple combined – I certainly wouldn’t bet on it.
2. Broadcom
Broadcom has decades of experience in the semiconductor and electronics industries. Apple is one of its best customers, using Broadcom’s 5G and wireless connectivity components in devices like the iPhone. But Broadcom has also become a very versatile AI company, thanks to some high-profile acquisitions in recent years.
On the hardware side, Broadcom has a thriving data center networking business. It sells a number of products and services, such as its Ethernet connectivity solutions, which control how quickly data travels between servers and devices. The Tomahawk 5 Ethernet switch is designed to handle the high workloads associated with AI, according to Broadcom doubled during the recent second quarter of fiscal 2024 (ended May 5) compared to the year-ago period.
Seven of the eight largest AI GPU clusters in the world now use Broadcom’s Ethernet solutions.
On the software side, Broadcom bought cloud developer VMware for $69 billion in 2023, which allows companies to create virtual machines to utilize the maximum capacity of their servers. This is critical for AI workloads where infrastructure is expensive and currently scarce. Then there’s cybersecurity provider Symantec, which Broadcom bought for $10.7 billion in 2019. The company weaves AI into its products to provide better protection to its customers.
Broadcom generated total revenue of $12.5 billion in the second quarter, up 43% year over year, mainly due to the first inclusion of VMware’s financials. However, the company’s AI revenues rose 280% to $3.1 billion. Broadcom now expects to generate total revenue of $51 billion in fiscal 2024, of which $11 billion will come from AI alone.
Based on non-GAAP (adjusted) earnings per share of $43.55 (which will become $4.35 after the 10-to-1 stock split), the stock trades at a price-to-earnings ratio of 39.2. Based on Wall Street’s earnings forecast of $59.90 for fiscal 2025, Broadcom’s stock trades at a price-to-earnings ratio of just 28.5.
Therefore, Broadcom is significantly cheaper than Nvidia in both respects. While the stock could deliver more gains in the second half of 2024, another 59% gain could be out of the question unless the company delivers spectacular financial results in the next two quarters.
Should You Invest $1,000 in Nvidia Now?
Consider the following before buying shares in Nvidia:
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Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Apple, Microsoft, Nvidia, and iShares Trust-iShares Semiconductor ETF. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
2 Stock split stocks rose 59% and 171% in the first half of 2024. Could the second half be even better? was originally published by The Motley Fool
