Nvidia (NASDAQ: NVDA) continues to dominate most of the discussion in the markets right now. Artificial intelligence is what everyone wants to talk about. So, whether it’s Nvidia, Broadcom (NASDAQ: AVGO) or a host of other semiconductor and IT infrastructure stocks, there are plenty of options out there for investors to choose from in this high-growth space.
Indeed, the growth Nvidia and Broadcom have both seen (thanks in part to AI-driven growth expectations) have led to stock prices that have gotten a bit out of hand for the average investor. Nvidia recently split its stock, and Broadcom is set to split its stock on July 15. These companies are clearly seeking to broaden out their investor basis, and improve their ability to hand out stock-based compensation. Riding stock split-related tailwinds is also a simplistic, but effective, strategy for high-flying companies that may be growing out of reach for existing investors.
That said, there’s another key AI-related growth stock that’s seeing plenty of stock price appreciation that looks poised to split. Here’s why Super Micro (NASDAQ: SMCI) looks poised to be the next stock that could (and probably should) split its stock.
Super Micro’s Growth Is Unreal
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Super Micro’s impressive surge this year in which the stock more than quadrupled at its peak had many speculating a stock split would be in order. SMCI stock hit a high of more than $1,200 per share in March, with the $1,000 level often viewed by high-growth stocks as a key level to target for a split, inviting smaller investors and those looking to trade options on its stock a little more leeway to do so.
However, Super Micro has seen a rather significant decline from this peak, now trading below $900 per share. For some, that means a stock split may be off the table. But with record-setting quarterly earnings continue to flow in, and top-line growth around the 200% level on a year-over-year basis, there’s a lot to like about Super Micro’s growth potential, and potential for further valuation expansion the longer this growth continues.
As a key provider of server hardware and storage solutions, Super Micro’s combination of hardware/software which is directly tied to surging AI demand provides the kind of fundamental growth that could lead to multiple expansion. And on a forward earnings basis, SMCI doesn’t look overly pricey, currently trading at only 22-times earnings.
If there’s yet another spike on an upcoming earnings beat, I could certainly see a stock split be in the cards for this key AI stock.
Why Would Super Micro Split Its Stock?
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Any company that engages in a stock split doesn’t do anything mathematically to its valuation. It’s simply an exercise in cutting a given pie into smaller pieces – existing shareholders will receive a certain number of shares for each one they own.
For Super Micro, splitting its stock could send a signal to the market that its recent historical fundamental growth hasn’t been a fluke. Investors would be able to more reasonably forecast future growth at a similar rate, given the fact that lower stock prices tend to be avoided by companies with dubious fundamentals (sometimes requiring reverse splits to maintain listing requirements, if a company’s share price drops too low).
Additionally, having more shares outstanding at lower prices could make it more feasible for Super Micro to reward employees with stock-based compensation and improve liquidity in the options market. Similar options-related surges have been seen with other AI stocks like Nvidia, with a surge in volume seen in and around its split. In my view, the two companies are very comparable on a number of key growth factors, and as such, it seems increasingly likely a stock split will come at some point.
It’s possible some anticipation around a potential split is already build into SMCI stock. And its valuation surge has been nothing short of incredible, given its size.
But as we’ve seen with Nvidia and other pure-play AI stocks, the sky does in fact seem to be the limit right now in terms of how high a particular stock can go. In that respect, maybe now is the right time for Super Micro to put forward an announcement.
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