Stock splits are a big deal in the investing world, especially among amateurs. You probably already know that stock splits don't affect the fundamental value of a company. If you own one share of stock worth $100, and the company splits it into 10 shares, you'll now have 10 shares worth the same $100, all at $10 a share.
But lower stock prices can also have benefits. For example, it can make it easier for small investors to build up positions. If you put $300 into your account each month, it's easier to build up a position in a stock that's selling for $100 than one that's selling for $2,000. Announcements also bring more attention to the company, which could help.
NVIDIA is the latest big tech company to announce a stock split (its second in the past three years). The company's shares split 10-for-1 last week (see below) after an incredible run-up over the past few years. But Nvidia isn't the only company whose stock price is soaring: the artificial intelligence (AI) boom has also sent several other stocks to all-time highs.
Which of these companies will split their stock next?
Super Microcomputer
Let's take a look Super Microcomputer (NASDAQ:SMCI)is trading at over $750 per share, well below its 52-week high of $1,229 but well above its 52-week low of $213. Supermicro, as it's known, is a backbone of the AI sector, with its server, storage, and networking hardware essential for data centers, edge computing, and more.
As you can see below, strong customer demand, driven primarily by AI, has led to a recent surge in revenue and operating profits.
The company's most recent quarterly revenue grew 200% year over year to $3.9 billion, and Supermicro expects continued strong growth next quarter, guiding to $5.1 billion to $5.5 billion. What's great about this revenue growth is that Supermicro is growing profitably, as evidenced by the increased operating income in the chart above. Data center growth is a tailwind that will continue for years to come (check out this article for more details).
If the stock price remains high, the company may move to split its stock in the near future.
Service Now
Businesses are turning to automation more than ever before. Automating tasks is essential for efficiency, which is paramount in the competitive business world. Service Now (NYSE:NOW)Customers will have access to virtual customer service agents, process automation, and AI-based problem detection, routing, and issue resolution solutions.
ServiceNow has a customer base of over 8,100 companies, including 85% of the Fortune 500. This includes about 2,000 large customers that spend an average of $4.6 million annually with ServiceNow. The company also boasts a 98% renewal rate. Like Supermicro, ServiceNow's revenue and operating profits are soaring, as shown below.
The $9.5 billion in trailing-12-month sales includes $2.6 billion in Q1 sales, up 24% year over year. ServiceNow's stock price has followed suit, trading at nearly $700 per share. If the stock price remains high, ServiceNow may follow other technology companies and consider splitting its stock.
In the big picture of the stock market, stock splits don't matter that much. They best serve investors by keeping most stocks trading in the same relative range. If every company did the same, things would get complicated. Berkshire Hathaway After decades of growth without a split, the company's stock trades for more than $600,000 a share (though investors can buy its Class B shares for much less).
Still, stock splits attract attention, open up markets to smaller investors and make for fun conversation topics. Nvidia is the latest big company to split its stock, and others could soon follow suit.
Should I invest $1,000 in Super Micro Computer right now?
Before buying Super Micro Computer shares, consider the following:
of Motley Fool Stock Advisor The analyst team Top 10 Stocks Here are the stocks investors should buy right now… Supermicro Computer wasn't one of them. The 10 stocks selected have the potential to generate huge profits over the next few years.
Things to consider NVIDIA This list was created on April 15, 2005…If you invested $1,000 at the time of recommendation, That works out to $740,886.!*
Stock Advisor With portfolio construction guidance, regular updates from our analysts, and two new stock picks every month, we provide investors with an easy-to-follow blueprint for success. Stock Advisor The service is More than 4 times First S&P 500 recovery since 2002*.
View 10 stocks »
*Stock Advisor returns as of June 10, 2024
Bradley Guichard invests in Nvidia. The Motley Fool invests in and recommends Berkshire Hathaway, Nvidia and ServiceNow. The Motley Fool has a disclosure policy.
Two artificial intelligence (AI) companies that could follow NVIDIA's lead and split their stock were originally published by The Motley Fool.
