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The Resurgence of Stock Splits: Opportunities and Insights
In recent years, stock splits have made a notable comeback. Once a common practice, their popularity waned but has now been revived as companies experience robust growth, leading to increased stock prices. Notably, the momentum that prompts stock splits often continues, with companies seeing an average stock price increase of 25% in the year following a split announcement, outperforming the S&P 500’s average gain of 12%, as per Bank of America analyst Jared Woodard.
Below, we explore three companies that have recently undergone stock splits and are forecasted by select Wall Street analysts to have significant potential, with one company expected to see gains as high as 215%.
Broadcom: Promising Upside of 36%
Broadcom (-0.88%) is one of the stock-split companies presenting a promising investment opportunity. The firm provides a wide array of products in the software, semiconductor, and security sectors, relevant to mobile, broadband, cable, and data centers. Remarkably, “99% of all internet traffic crosses through some type of Broadcom technology,” positioning the company as a pivotal player in the rise of artificial intelligence (AI).
In its fiscal third quarter ending August 4, Broadcom reported a 47% year-over-year revenue increase to $13 billion, with adjusted earnings per share (EPS) rising 18% to $1.24. While the integration of VMWare has temporarily pressured earnings, significant contributions are anticipated in fiscal 2025. Broadcom has also revised its full-year revenue guidance to $51.5 billion, marking a nearly 44% growth.
The company’s robust growth history led to a 10-for-1 stock split in July. The stock’s value has more than tripled since early 2023, coinciding with the AI surge, yet many analysts foresee further gains. Rosenblatt Securities analyst Hans Mosesmann maintains a buy rating with a split-adjusted price target of $240, indicating a 36% upside potential from the recent closing price.
Mosesmann believes Broadcom’s management is conservative in its guidance, suggesting room for upward revisions. He highlights opportunities in Broadcom’s application-specific integrated circuits (ASICs) and related products supporting networking and switching, anticipating increased AI demand. Additionally, the VMWare integration is expected to enhance Broadcom’s results.
Among 39 analysts reviewing Broadcom in September, 35 recommended buying or strongly buying, with none suggesting a sell. Despite its growth trajectory, Broadcom’s stock trades at less than 28 times next year’s anticipated earnings, presenting a potentially undervalued opportunity for investors.
Nvidia: Anticipated Upside of 85%
Nvidia (2.24%) is another stock-split company with substantial growth potential. Known for its industry-leading graphics processing units (GPUs), Nvidia’s technology is crucial for applications including video games, cloud computing, and data centers, and is vital for processing generative AI.
Nvidia’s fiscal 2025 second quarter, ending July 28, saw record quarterly revenue, up 122% year-over-year to $30 billion, and a 168% surge in diluted EPS to $0.67. These results were driven by the data center segment, including AI-focused chips, with revenue increasing 154% to $26.3 billion.
This marked Nvidia’s fifth consecutive quarter of triple-digit sales and profit growth, leading to a 10-for-1 stock split. Although the stock has experienced volatility, it remains just 8% below its all-time high, with more growth anticipated.
Rosenblatt analyst Hans Mosesmann reaffirmed a buy rating with a price target of $200, suggesting a 60% increase from the latest closing price. Mosesmann emphasizes the significance of Nvidia’s software, which complements its hardware and is expected to enhance sales and valuation in the coming decade.
In September, 55 out of 60 analysts rated Nvidia as a buy or strong buy, with no sell recommendations. The potential for Nvidia’s stock to rise further remains strong, and Mosesmann’s price target might even be conservative.
Super Micro Computer: Potential Upside of 215%
Super Micro Computer (15.79%), also known as Supermicro, rounds out our list of stock-split companies with considerable potential but carries some controversy. As a leading provider of custom-designed servers for over 30 years, Supermicro’s building-block architecture allows customers to tailor systems to their needs, offering flexibility and cost-effectiveness. The company is also a leader in direct liquid cooling (DLC), crucial for AI demands, with CEO Charles Liang estimating a 70-80% market share in DLC.
In its fiscal 2024 fourth quarter ending June 30, Supermicro achieved record revenue of $5.3 billion, a 143% increase, with adjusted EPS rising 78% to $6.25. Despite concerns over profit margins, Liang attributed this to temporary component bottlenecks and expects improvement. These strong results preceded a 10-for-1 stock split completed recently.
However, Supermicro has faced scrutiny, with a short report from Hindenburg Research alleging accounting issues and other concerns. The company delayed its annual report to evaluate internal controls, and a Wall Street Journal report suggested a U.S. Justice Department investigation.
Despite these challenges, some analysts remain optimistic. Rosenblatt analyst Hans Mosesmann maintained a buy rating with a split-adjusted price target of $130, representing a 215% potential upside. He views the stock correction as excessive, dismissing the Hindenburg findings as outdated or inaccurate.
While others adopt a cautious stance, nine of 18 analysts still rated the stock as a buy or strong buy in September, with none recommending a sell. Hindenburg Research’s motives are questionable as a short seller, and its track record is mixed, so its claims should be viewed critically.
For risk-tolerant investors, Supermicro offers potential rewards that may outweigh the risks posed by unverified short-seller allegations. As a shareholder, I believe in Supermicro’s value, with the stock trading at just 21 times earnings, making it an attractive investment option.
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