While artificial intelligence (AI) has been the talk of Wall Street since early 2023, the return of stock split euphoria means AI will stand head and shoulders above the rest in 2024.
A stock split is a mechanism that publicly traded companies can rely on to cosmetically change their stock price and the number of shares outstanding. It is superficial in the sense that adjusting the stock price and number of shares by the same amount does not affect the market capitalization or underlying operating performance of a company.
Splits come in two forms, one of which is substantial more popular than the others. Reverse stock splits are aimed at increasing a company’s stock price. This is usually done to ensure that the company meets the minimum listing standards of a major stock exchange.
On the other hand, forward stock splits lower a company’s stock price. The purpose of a forward split is to make stock nominally more affordable for investors who don’t have access to fractional share purchases through their broker. Since forward splits are almost always announced from a position of operational strength, this is the type of split that investors gravitate toward.
Since the start of 2024, 13 proven companies have announced or completed a stock split, all but one of which are forward splits. While no split has received more attention than AI darlings Nvidia (NASDAQ: NVDA) And Broadcom (NASDAQ: AVGO)There’s another red-hot stock gearing up for its moment in the spotlight.
Nvidia and Broadcom are Wall Street’s most anticipated stock splits in 2024
According to analysts at PwC, artificial intelligence is expected to add $15.7 trillion to the global economy by 2030 through various consumption-side benefits and productivity improvements. With such a large market, it’s no surprise that Wall Street is falling head over heels for AI stocks.
Nvidia is the runaway face of the AI revolution. Since the beginning of 2023, Nvidia’s market cap has increased by $2.8 trillion, the fastest increase we’ve ever seen from a market-leading company. This was the catalyst that forced Nvidia’s board of directors to approve a 10-for-1 forward split.
Nvidia’s astronomical gains are a function of the fact that its H100 graphics processing units (GPUs) are the undisputed top choice in AI-accelerated data centers. Analysts at semiconductor firm TechInsights note that Nvidia’s GPUs accounted for all but 90,000 of the 3.85 million GPUs shipped to data centers in 2023.
With overwhelming demand comes exceptional pricing power that has driven the company’s adjusted gross margin higher considerable higher. Nvidia’s H100 carries a price tag of $30,000 to $40,000, which is well above what its competitors are asking for their AI GPUs.
And don’t forget Nvidia’s CUDA platform. This software kit that helps developers build large language models works hand in hand with the company’s hardware to keep customers within its ecosystem of products and services.
Meanwhile, Broadcom is a major provider of networking solutions. Last year, it introduced its Jericho3 AI fabric, which can connect up to 32,000 GPUs in high-compute data centers. The goal of Broadcom’s solutions is to reduce tail latency and maximize the computing potential of deployed GPUs.
While Broadcom’s stock has surged on the back of its AI networking solutions (the big move led to the company’s first-ever stock split, 10-for-1, after the close of trading on July 12), there’s much more to this company than just artificial intelligence-related solutions.
For example, Broadcom is a leader in developing wireless chips and solutions for next-generation smartphones. Telecom companies upgrading their wireless networks to support 5G download speeds has increased demand for the chips and accessories used in next-generation wireless devices.
While Nvidia and Broadcom have peaked, there’s another enduring outperformer. This one has nothing to do with AI and is up more than 120,000% since its initial public offering (IPO), including dividends. The company is poised to become the latest Wall Street stock to split stock.
This 120,000% Gainer Is Just Two Weeks Away From Becoming Wall Street’s Latest Stock Split
After the close of business on September 11, provider of workwear and business services Cintas (NASDAQ: CTAS) will complete a 4-for-1 forward split and join the elite group of outperforming stocks with a stock split in 2024.
This is the sixth time Cintas has executed a forward split since its IPO in August 1983:
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April 1987: 2-for-1
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April 1991: 3-for-2
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April 1992: 2-for-1
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November 1997: 2-for-1
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March 2000: 3-for-2
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September 2024: 4-for-1
How does a company that makes workwear, floor mats, towels and safety kits so convincingly outperform Wall Street’s benchmark indexes over a four-decade period? History and revenue diversity are the first key pieces of the puzzle.
Based on the company’s own admission in June, it has “more than 1 million businesses of all types and sizes” that it serves. Because no single customer accounts for an outsized percentage of its revenue, Cintas doesn’t have to worry about the proverbial ship sinking because of the problems of one or more of its customers.
Furthermore, Cintas has history on its side. While recessions are a perfectly normal aspect of the economic cycle, they are almost always short-lived. Periods of economic growth last considerably longer, allowing Cintas’ customers to expand. This in turn increases the demand for workwear and business services over time.
Another key to the company’s long-term success is its willingness to grow through acquisitions. Since the turn of the century, it has acquired Omni Services (2002), Zee Medical (2015), and G&K Services (2017), to name a few. These profitable deals expand the company’s product portfolio and keep existing customers within its network of products and services.
Don’t forget innovation either. Cintas has introduced new products to attract new customers and leaned on various cross-selling solutions to encourage existing customers to spend more.
The icing on the cake is the company’s incredible capital return program. It has increased its dividend every year since going public in 1983 and recently expanded its share buyback program, which reached $1.5 billion as of July 23, 2024. A company that can increase its payout without interruption for four decades is a company that has shown it can handle whatever the U.S. economy throws its way.
The only downside to Cintas is its valuation. While being an industry leader has its advantages and comes with a certain valuation premium, a forward price-earnings ratio of nearly 43 for a company that is expected to grow its earnings per share at an average annual rate of 13% through 2028 is hard to justify.
Should You Invest $1,000 in Cintas Now?
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Broadcom and Cintas. The Motley Fool has a disclosure policy.
Make Way, Nvidia and Broadcom: Wall Street’s Next Stock Split Stock — Up 120,000% Since Going Public — Is Poised to Become the Center of Attention was originally published by The Motley Fool
