As artificial intelligence (AI) continues to reshape the landscape of the U.S. stock market, investors are experiencing a surge in excitement, particularly surrounding stock splits. These corporate maneuvers have the potential to boost valuations significantly, offering an interesting avenue for everyday investors.
A stock split allows companies to adjust their share prices and the number of outstanding shares without impacting their overall market capitalization or operational performance. There are primarily two types of splits: forward and reverse. Forward splits, which reduce share prices, are generally more favorable and attract attention, as they make investments more accessible to a broader audience. Conversely, reverse splits often indicate distress, as they are typically executed by struggling companies aiming to meet the minimum listing standards of major stock exchanges.
2024 has been a remarkable year for stock splits, particularly those associated with high-profile companies in the AI sector. Among the most talked-about splits this year have been those of Nvidia and Broadcom, two giants leading the AI revolution. Nvidia’s historic 10-for-1 forward split took effect in June 2024, while Broadcom followed suit just weeks later with its own 10-for-1 split. This surge in interest is understandable, given that AI is projected to contribute $15.7 trillion to the U.S. economy by 2030, as reported by PwC. With Nvidia’s graphics processing units (GPUs) dominating the AI-GPU market and Broadcom providing essential networking solutions, their splits have captivated investor interest.
However, the spotlight is set to shift next week as two other companies—Super Micro Computer and Lam Research—emerge with their own highly anticipated stock splits.
Super Micro Computer, a specialist in customizable rack servers and storage solutions, has approved a 10-for-1 stock split, with the change effective after the markets close on September 30. This will mark the company’s first stock split since it became publicly traded in March 2007. Super Micro has experienced staggering growth, boasting a 110% increase in net sales in fiscal 2024 and forecasting an additional 87% growth for the current fiscal year. The company is particularly appealing to investors as it leverages Nvidia’s H100 GPUs in its solutions, although it faces challenges with H100 order backlogs.
On the other hand, Lam Research, which focuses on semiconductor wafer fabrication equipment, will execute a 10-for-1 split followed by a $10 billion share repurchase program. This split, set to take place on October 2, is significant as it’s the first since 2000. Lam Research plays a crucial role in the AI ecosystem by providing the equipment necessary for manufacturing AI solutions, particularly in packaging high-bandwidth memory (HBM). Despite solid sales growth projections, Lam faces challenges due to recent regulatory restrictions on AI-related exports to China, which could impact its revenue.
Both companies are navigating a complex market landscape. While Super Micro is riding high on growth expectations, it must prove that its aggressive forecasts are sustainable, especially in light of a potential DOJ investigation into alleged accounting practices. Lam Research, meanwhile, while enjoying steady growth, must contend with the broader concerns of a potential recession and the cyclical nature of the semiconductor industry.
Investors looking into Super Micro Computer should consider the current market environment carefully. While it may seem like a bargain with forward earnings priced at just over 10 times, the company has a lot to demonstrate moving forward. Lam Research also presents a compelling case for long-term growth, albeit with some looming risks that investors need to keep an eye on.
In summary, as AI continues to drive innovation and create opportunities in the financial markets, watch closely to see how Super Micro and Lam Research perform in their upcoming stock splits. With the potential for growth intertwined with regulatory challenges and market dynamics, they are sure to attract significant interest from investors eager to capitalize on the AI wave.