Investing

The Next AI Stock Split After NVIDIA Just Got More Likely

Eric Bleeker

Published: June 24, 2024 5:01 pm

With recent stock splits by NVIDIA (NASDAQ: NVDA)  and Broadcom (NASDAQ: AVGO) leading to significant stock price increases, there is intense speculation over which AI-related stock could announce a stock split next. We break down why Super Micro Computer (Nasdaq: SMCI) still looks like a very likely candidate to split its shares, and why news in the past week makes a coming stock split more likely.

Why a Super Micro Stock Split In August Still Looks Likely

Some of the key points from 24/7 Wall Street analysts Austin Smith and Eric Bleeker can be found below.

• There is a bit of stock split mania happening in the markets right now and it’s only fueled more by the performance of stocks like NVIDIA and Broadcom after they announced stock splits recently. At 24/7 Wall Street, we predicted both NVIDIA and Broadcom would split their stocks well before each company announced their splits. 
• So the question is, which stock in the AI space is most likely to announce a stock split next?
• Our prediction is that company will be Super Micro Computer, which could happen in early August when the company next reports earnings.
• But before we discuss Super Micro specifically, we need to take just a moment to appreciate how much stocks that have split recently have outperformed the market.
• Would you believe that NVIDIA was trading for an adjusted price of $94.95 before their split? The company briefly passed $140 at its peak, meaning it had jumped almost 50% since the earnings announcement where it announced its split.
• And Broadcom jumped 22% in the three days following the earnings release where it announced a 10:1 stock split.
• Obviously, those stocks are both leaders in artificial intelligence, but Super Micro Computer is also a company that’s strongly tied to AI growth.
• Super Micro Computer had been under pressure recently, and there were two key concerns holding the company’s stock back.
• First, fears around margins that were sparked by Dell’s (NYSE: DELL) conference call. A key part of the “thesis” for AI server companies is they’ll be able to increase their margins in this space and Dell had some quotes on their conference call that muted expectations around profit margin growth.
• Second, there have been reports that NVIDIA is pushing more into Super Micro’s space with their new GB200 servers. Specifically, NVIDIA is directly designing server racks in a move that would put further pressure on Super Micro’s margins.
• However, optimism over events like Super Micro scoring a big win with xAI have helped reverse recent losses from these concerns.
• We bring these concerns up because the number one factor that could delay a Super Micro stock split is the stock struggling.
• Generally, stock splits have been regarded as a sign of strength, so a company risks “wasting” the marketing event of a stock split if they don’t have momentum behind them.
• Second, we’ll note that almost every major recent technology stock split has been announced alongside earnings that exceeded Wall Street expectations.
• This was true of both NVIDIA and Broadcom, but it was also true of Google, Amazon, and Apple’s most recent splits as well.
• So, what are the odds Super Micro splits? If the stock is still trading above $800 per share (give or take) and their earnings aren’t disappointing – and trust us that management generally has a good idea of what’s disappointing or not – we believe the odds of a split on their next earnings call are very good. Probably greater than 50%.

Transcript:

Eric, it’s been stock split mania in the markets right now, and it’s only fueled more by NVIDIA’s recent performance, and the company famously did a 10 to 1 stock split.

So you predicted several upcoming stock splits, including NVIDIA prior to their announcement and Broadcom, which recently also split. So well done.

I’m curious, what stock do you think might split next?

Yeah, I won’t keep people waiting. The stock I think will announce a split next is likely Super Cicro Computer, which should report in early August.

But before I talk about them, I do want to take a moment just to appreciate how much stocks that have split have outperformed recently.

Because first off, would you believe that NVIDIA, it was trading for an adjusted price of $94.95 before it split.

The company just briefly passed $140. It’s taken a little price off that recently. But we are talking almost a 50% jump recently for a company that size after announcing its split, which is just truly historic.

And you mentioned Broadcom, which is another stock I had highlighted several times as a likely split candidate. They’re doing a 10 for 1 stock split as well.

And in the three days after their earnings and split announcement, Broadcom was up 22%.

So earnings, the actual earnings from both stocks, they were very good. And Broadcom updates AI revenue guidance and gave some really upbeat commentary on areas like networking.

These are definitely two leading stocks in AI right now.

But of course, Super Micro Computer is also a stock that’s had some of the strongest ties aligning itself to AI growth.

So I should note a couple of things. It has been under some pressure recently, and that pressure was related to two areas.

The first was fears around margins, and that was sparked by commentary on Dell’s conference call. Because a key thesis for these AI server companies is that with AI server sales, they’re going to be able to increase margins.

And some of the commentary from Dell’s conference call muted those expectations, and that put pressure on Super Micro stock.

And second, NVIDIA, they’ve been pushing a little bit more into Super Micro’s space with their new GB200 servers, and that’s brought some fears that that’s going to be some headwinds for the company.

But I bring this up to say, if Super Micro stock is struggling, it’s going to decrease the likelihood of a split, especially if they’re down, you know, they’ve recently been above $900 per share.

If they’re down in that $600, $700 range, it’s just going to make it more unlikely.

But that recent momentum, you know, for reasons like winning big contracts with xAI, which is Elon Musk’s company, it’s put them back in a higher range, and that raises the likelihood of a split.

And second, I’ll note that almost every major recent technology stock split has been announced alongside earnings that exceeded Wall Street expectations.

This was true for both NVIDIA and Broadcom. It was also true before them for the recent stock split from Google, Amazon, and Apple.

So if you’re looking at Super Micro’s next earnings, if they’re positive, and trust me, that management generally has a good idea whether or not they are disappointing, I think the odds of that stock split are very good.

As of right now, if earnings for next quarter are generally believed to be good by management, they can maintain their price in this area above $800.

I would put the probability of a stock split announcement from Super Micro at greater than 50%.

There you have it. You heard it here first. Super Micro, we’re calling it as most likely the next tech stock to split.

And hey, it is the season for tech stock splits. And as you noted, what I found so incredible about these splits is that at a fundamental level, the value of the company doesn’t change.

But we’ve seen these enormous runs after the fact. And whether it’s a sign of optimism from management because shares have become so elevated in price and they expect them to continue going up, or if they just want to make the shares more accessible to retail investors, it really appears like there is a premium being put on these shares at those prices.

So stock splits, it’s not necessarily, you know, mathematically it might not change anything about the company, but boy, those returns post stock split really suggest that the market feels differently and this is something they’re really looking forward to.

So there you have it. Super Micro, if they’re still trading above $800 or so a share, we believe that they’re going to be the next major tech stock to split.