Stock splits are back in fashion.
After a number of years in which there were hardly any stock splits on the market, large companies now seem eager to change their course. Nvidia (NASDAQ: NVDA)For example, the company just became the fifth of the ‘Magnificent Seven’ stocks to split its shares in less than four years, announcing a 10-for-1 stock split that will take effect on June 7.
Nvidia shares are up about 20% since the announcement, benefiting from a strong earnings report. Walmart And Chipotle as winners of this year’s stock split.
With all three stocks posting significant gains following the stock split announcements, it’s only natural to ask which company could be the next example, and one semiconductor equipment maker seems like an obvious candidate.
Will this chip stock be the next to do a stock split?
With the stock price hovering around $1,000, ASML (NASDAQ: ASML) seems like a good candidate to be the next big tech stock to split its stock.
After all, ASML has the components that usually trigger a share split. It has experienced significant share price appreciation in recent years, up over 400% in the last five years and over 1,000% in the last ten years, and its individual share price is high at over $1,000. In fact, ASML’s recent price of $965.48 (as of Monday) is higher than Nvidia’s when it announced the 10-to-1 stock split, and has been rising ever since. Management also appears increasingly confident that the company is about to enter a new demand cycle.
ASML, which makes the equipment that chipmakers love Taiwanese semiconductor manufacturing used to produce chips, has had three stock splits in its history, but hasn’t done one since 2000. The company even had an unusual 8-for-9 reverse split in 2007, which was implemented in conjunction with a plan to return 960 million euros to shareholders.
ASML has not given any indication that it is planning a stock split, but it appears that this is likely to happen if the share price continues to rise.
Is ASML share a buy?
ASML has a history of delivering strong results for investors thanks to steady growth and high profit margins. It also has one of the widest economic moats in the semiconductor industry.
The company is the leading manufacturer of lithography systems used to make semiconductors, and it is the only manufacturer of extreme ultraviolet (EUV) lithography systems, which make advanced chips as small as 2 nanometers. ASML says its EUV technology prints microchips using light at a wavelength of 13.5 nm, which is close to the X-ray range.
ASML makes highly technical machines that are very expensive, and only sells about 100 per quarter. Therefore, results tend to be cyclical and revenues have recently declined year-on-year.
However, management says it is in the midst of a transition year as its non-EUV business declines, and the company expects revenue growth to accelerate in the second half of this year and into 2025. Among the catalysts it sees in 2025 are secular growth in semiconductor end markets, including green energy, electric vehicles and artificial intelligence. In addition, there is a broader cyclical upturn in the chip sector and a large number of new factories are planned that will rely on ASML equipment.
Regardless of whether ASML announces a stock split soon, the shares still look like a buy. The demand for semiconductors is only growing, and with it the demand for the advanced chips in which ASML’s systems are specialized, and which should help broaden its economic position.
For patient investors, buying ASML shares now should pay off once the next growth cycle arrives later this year and into 2025.
Should you invest €1,000 in ASML now?
Keep this in mind before buying shares in ASML:
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Jeremy Bowman holds positions in Chipotle Mexican Grill. The Motley Fool holds positions in and recommends ASML, Chipotle Mexican Grill, Nvidia, Taiwan Semiconductor Manufacturing, and Walmart. The Motley Fool has a disclosure policy.
After Nvidia’s stock split, could this chip stock be next? was originally published by The Motley Fool
