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For the past thirty years, Wall Street and investors have almost always had a next-big-thing technology, innovation, or trend to tap into. What’s unusual is that there are two trends competing for attention at the same time, and that’s what’s happening right now.
Since 2023, the rise of artificial intelligence (AI) has fascinated Wall Street. The ability of software and systems to learn without human intervention gives AI a sky-high addressable market in the long term.
But we have also witnessed the return of stock split euphoria.
A stock split is an event in which a publicly traded company changes its stock price and the number of shares outstanding. These are purely cosmetic measures intended to make shares nominally more affordable to ordinary investors, such as in a forward-stock split, or to increase a company’s share price to ensure it meets minimum standards for continued listing a large stock exchange, as in an inverted stock exchange. -stock split. Stock splits have no effect on a company’s market capitalization or underlying operating performance.
In the past six months more than a dozen high-profile, proven companies have announced and/or completed a stock split, all but one of the forward-split variety. Investors tend to focus on companies that implement forward splits because they are run from a position of operating strength.
Although there is probably no more stock split expected this year than AI giants Nvidia (NASDAQ: NVDA) And Broadcom (NASDAQ:AVGO)another high-flying artificial intelligence stock is vying for its moment in the spotlight.
Nvidia and Broadcom completed a historic stock split this year
Although brand name juggernauts Walmart And Chipotle Mexican Grill As the 2024 stock split celebration kicked off, Nvidia’s May 22 announcement that it would complete its largest stock split in history, 10-to-1, got current and future investors very excited.
About two weeks after completing the split, which took place after the close of trading on June 7, Nvidia’s stock briefly topped $140 per share, giving the company a peak market value of $3.46 trillion. This combination of euphoria over the stock split and the fact that its hardware was leading the AI revolution allowed Nvidia to briefly become the largest publicly traded company in the world.
Nvidia has a virtual monopoly on the graphics processing units (GPUs) responsible for the split-second decision-making that powers AI-powered data centers. In 2023, Nvidia was responsible for 3.76 million of the 3.85 million GPUs shipped to data centers, and current demand for its superstar H100 GPU has handily overwhelmed supply.
While history would suggest that any next major innovation is destined for a bubble burst – which would undeniably hit Nvidia’s stock hard – Nvidia has turned its computing advantages into huge operating and stock-based profits.
On June 12, AI networking specialist Broadcom followed suit by announcing its own 10-for-1 forward split. This is Broadcom’s first-ever stock split since Avago and Broadcom officially merged in early 2016. The shares began trading at a split-adjusted price on July 15.
Broadcom has quickly embraced the interest and demand for AI-relevant networking solutions. Last year it introduced its Jericho3-AI fabric, which can connect up to 32,000 high-performance GPUs. The company’s solutions are designed to reduce tail latency and ensure that businesses get as much computing power as possible from their GPUs.
However, Broadcom also generates a lot of revenue and operating cash flow outside the AI arena. The wireless chips and accessories are indispensable in the next generation of smartphones. In addition, Broadcom offers a range of industrial automation and next-generation vehicle products, as well as cybersecurity solutions.
While Nvidia and Broadcom have had their moment in the sun, Wall Street’s latest AI stock split, whose shares have risen 2,750% in value over the past five years, is gearing up for its moment of fame.
Introducing Wall Street’s Latest AI-Powered Stock Split Stock
The high-flying AI stock that will knock off Nvidia and Broadcom is none other than a customizable rack server and storage specialist Super microcomputer (NASDAQ: SMCI).
After the closing bell on August 6, Super Micro announced that its board had approved a historic 10-for-1 stock split. As with Broadcom, this represents the first-ever split of Super Micro. With an effective date of September 30, 2024, shares should open at a price closer to $51 (based on the closing price on August 8) once trading begins on October 1.
Just as Nvidia’s chips have become the “brains” of AI-accelerated data centers, Super Micro Computer is seemingly the top choice among companies for AI infrastructure. Net sales for the quarter ending in June rose to $5.31 billion, which is a cool 144% higher than the year-ago period. The general expectation is that demand for the physical infrastructure needed to power AI-accelerated data centers will not decrease anytime soon.
But at the same time, the argument has to be made that Super Micro Computer may have come a little too far, too fast.
As I mentioned earlier, every potential game-changing innovation, technology, and trend for thirty years has endured an early-stage bubble burst. This is a roundabout way of saying that investors have a consistent habit of overestimating the adoption and utility of new innovations. Since most companies don’t have a real game plan with AI, we’re likely witnessing the next in a long line of early collection bubbles.
Super Micro Computer also has a precedent of rapid growth trends not playing out as predicted. In the mid-2010s, the company’s shares rallied on expectations that its infrastructure would be key to the new cloud computing boom. Ultimately, demand for customizable rack servers did not meet high expectations and inventory declined by approximately 75% over several years.
Another thing to think about about Super Micro Computer is that it is heavily dependent on Nvidia for its success. The company’s rack servers contain Nvidia’s H100 GPUs. If production capacity for the H100 remains limited, Super Micro will likely not be able to fulfill all of its infrastructure orders.
While Super Micro Computer’s shares appear cheap (the company’s price-to-earnings ratio is just 12), this valuation is based on near-flawless execution going forward. If history tells us anything, it’s that the ramp that comes with new technologies and trends is rarely, if ever, perfect.
Should You Invest $1,000 in Super Micro Computer Now?
Consider the following before buying shares in Super Micro Computer:
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Chipotle Mexican Grill, Nvidia, and Walmart. The Motley Fool recommends Broadcom and recommends the following options: Short September 2024 Put $52 on Chipotle Mexican Grill. The Motley Fool has one disclosure policy.
Move Over, Nvidia and Broadcom: Wall Street has a new Artificial Intelligence (AI) Stock Split. was originally published by The Motley Fool