Investors cheered at the time Nvidia (NASDAQ: NVDA) announced a 10-for-1 stock split in its earnings report at the end of May. And in the two weeks that followed – the time leading up to the operation – shares rose almost 30%. Investors like stock splits because they lower the prices of high-flying stocks, making them more accessible to a broader group of buyers, and they show that the company in question is confident in its future. The idea is that the company believes its stock has what it offers. takes to climb again.
This past week, in the wake of fellow artificial intelligence (AI) giant Nvidia’s stock split. Broadcom (NASDAQ:AVGO) said they too would launch a 10-to-1 split. Like Nvidia, Broadcom shares have posted triple-digit gains in recent years and have soared above $1,000 recently. Broadcom plans operations on July 12. The question now is whether the stock could follow in Nvidia’s footsteps and rise into double digits before the split. Let’s find out.
Broadcom’s stock split
First, a few words about stock splits in general and the upcoming Broadcom operation. In a stock split, a company issues more shares to current shareholders. Doing this causes the price of each individual stock to fall without changing the overall value of the company or the value of each investor’s holdings. The idea is to make it easier for a wider range of investors, for example those with smaller budgets, to buy into a particular player.
As for Broadcom, if you own one share on July 11, you will receive nine additional shares after the markets close on July 12. And on July 15, shares will begin trading at the split-adjusted price, which, given the current price, the Broadcom price should be around $173.
Shares of Broadcom jumped 12% in one trading session after the announcement as investors welcomed the news, and shares rose more than 3% the next day. So Broadcom is off to a good start in terms of pre-stock split performance.
It is possible that, like Nvidia, its shares will continue to rise ahead of the operation as investors are particularly interested in companies launching such operations. But it’s important to remember that whether or not Broadcom rises in the one-month period before the split, this is only a short-term move. That means that whether you’re already a Broadcom shareholder or you buy the stock in the coming days, the performance of the next few weeks is unlikely to change your returns if you hold on over the long term. I’m talking at least five years.
Can Broadcom make a profit over time?
The bigger question is whether Broadcom has the potential to continue making profits over time after the split. And here things look rosy. Broadcom is a semiconductor and networking giant that sells products that power smartphones, help data centers move and store data, and much more. This niche has helped the company grow profits over time, and Broadcom’s commitment to research and development (R&D) is a positive sign for the future, with this continued innovation potentially translating into growth.
Broadcom has increased R&D spending by 27% annually since 2009. The company invested more than $5 billion in this area last fiscal year.
This commitment has helped Broadcom meet rising demand from AI customers for AI networks and custom accelerators. In its most recent quarter, Broadcom said it doubled the number of switches sold compared to the year-ago period, and that demand was particularly strong for Jericho3, a product that scales connectivity up to 32,000 graphics processing units (GPUs) in a single cluster.
Also keep in mind that AI growth is still in its infancy, as analysts predict the market will surpass $1 trillion by the end of the decade. That’s up from just over $200 billion today.
All this means that Broadcom’s revenues could continue to rise as more companies develop AI projects or expand current projects. And that can improve stock performance over time. So yes, if Broadcom shares rise before the stock split, that’s good news for shareholders. But if they don’t, I wouldn’t worry. This networking giant’s long-term prospects are solid, and that means whether you buy the stock today or in the coming months, you could gain big over time.
Should You Invest $1,000 in Broadcom Now?
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Adria Cimino has no positions in the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
Nvidia rose almost 30% before the stock split. Can Broadcom do the same? was originally published by The Motley Fool
