The evidence shows that stock-split stocks have a history of outperforming the broader market, and the advent of artificial intelligence (AI) is fueling even greater gains.
The past few years have seen a return to the popularity of stock splits. The practice was a regular occurrence during the 1990s and had fallen by the wayside, but has experienced a renaissance in recent years. A stock split is typically the result of years of strong business and financial results, which fuel a soaring stock price. Over the past year or so, artificial intelligence (AI) has added a new element to the mix, propelling some companies to dizzying new heights.
What’s even more intriguing is that history shows the strong performances that precede stock splits tend to continue. Companies that conduct stock splits generally deliver stock price increases of 25%, on average, in the year following the announcement, compared with average increases of 12% for the S&P 500, according to data compiled by Bank of America analyst Jared Woodard.
Here are three stock-split AI stocks that still have a long runway ahead, according to select Wall Street analysts.
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Broadcom: Implied upside 57%
The first stock-split stock with a boatload of upside potential is Broadcom (AVGO -10.36%). What sets the company apart is the breadth of its offerings, which include software, semiconductor, and security products across cable, broadband, mobile, and data center industries.
To give this some context, “99% of all internet traffic crosses through some type of Broadcom technology,” according to the company. This puts Broadcom in a crucial place in the accelerating adoption of AI.
The critical nature of its offerings is translating into improving results. In the second quarter, revenue jumped 43% year over year to $12.5 billion, driving adjusted earnings per share (EPS) up 6% to $10.96. The company is still digesting its acquisition of VMWare late last year, which is weighing on profits, but management is predicting a return to form in fiscal 2025. The company’s forecast suggests its robust growth will continue as management increased its full-year revenue guidance to $51 billion, or growth of more than 42%.
Broadcom’s track record of consistent growth and savvy business moves led to its 10-for-1 stock split in mid-July. Despite delivering gains of 173% since the start of 2023 — which marked the kickoff of the AI revolution — many Wall Street analysts are still remarkably bullish.
Rosenblatt analyst Hans Mosesmann is the company’s biggest bull. Just ahead of the split, he reiterated his buy rating and increased his price target to a Street-high, split-adjusted $240. This represents potential gains for investors of 57% compared to Tuesday’s closing price.
Mosesmann believes management’s guidance still leaves room for additional upside, driven higher by sales of AI-centric application-specific integrated circuits (ASICs) and chips used in networking and switching. He also believes that VMWare will soon begin to contribute meaningfully to Broadcom’s results.
The analyst isn’t alone in his bullish prognostication regarding Broadcom. Of the 39 analysts who issued an opinion in August, 35 rated the stock a buy or strong buy, and none recommended selling.
Nvidia: Implied upside 85%
The second stock-split stock with plenty of upside potential is Nvidia (NVDA -4.08%). The company pioneered the graphics processing units (GPUs) that revolutionized video games, cloud computing, and data centers. This technology has become the gold standard for processing generative AI, as its GPUs provide the computational horsepower needed for AI.
For its fiscal 2025 second quarter (ended July 28), Nvidia generated record quarterly revenue of $30 billion, up 122% year over year, resulting in diluted earnings per share (EPS) of $0.67, which surged 168%. The blockbuster results were primarily driven by the data center segment — which includes the chips used for processing AI — as revenue soared 154% to $26.3 billion.
A series of blockbuster quarters have fueled a blistering rise in Nvidia’s stock price, which has gained 639% since the start of last year, prompting its well-received 10-for-1 stock split in June. In recent months, some investors have begun to wonder if its winning streak can continue, but many on Wall Street believe there’s a long road ahead. Just this week, Rosenblatt analyst Hans Mosesmann reiterated his buy rating and Street-high price target of $200 on Nvidia, which represents potential gains of 85% compared to Tuesday’s closing price.
The analyst believes Nvidia is a victim of its own success, saying its falling gross margin is a “high-class problem” to have. He notes that demand for the company’s current Hopper chips is “much stronger” than many expected, while Nvidia’s upcoming Blackwell processor will be “ramping hard” heading into the January quarter.
He isn’t the only one who believes the future is bright. Of the 58 analysts who issued an opinion in August, 92% rated the stock a buy or strong buy, and none recommended selling.
Super Micro Computer: Implied upside 240%
The last of our trifecta of stock-split stocks with plenty of upside ahead is Super Micro Computer (SMCI -6.79%), also known as Supermicro. The company has been at the forefront of custom server design for more than three decades.
Supermicro’s rack-scale servers have a unique building-block architecture, allowing users to design a device best suited to their needs. Furthermore, Supermicro offers leading-edge direct liquid cooling (DLC), which is the technology of choice for AI-centric data centers. In fact, CEO Charles Liang estimates the company has a DLC market share of between 70% and 80%.
In its fiscal 2024 fourth quarter (ended June 30), Supermicro generated record revenue of $5.3 billion, up 143% year over year and 38% quarter over quarter. This resulted in adjusted earnings per share (EPS) of $6.25, up 78%. The company’s declining profit margin caught some investors off guard, but Liang cited a temporary bottleneck and product mix for the issue and expects a recovery in short order.
However, the past couple of weeks have been challenging for Supermicro investors. Last week, the company was the subject of a short attack by Hindenburg Research, alleging accounting issues, third-party transactions, and violating sanctions, among other allegations. The next day, Supermicro said it would be late filing its annual report. This double dose of uncertainty dragged the stock lower.
Most on Wall Street brushed off the report, saying it was a rehash of known and existing issues. The company has since issued a letter stating it doesn’t “anticipate any material changes” to its fourth-quarter or fiscal 2024 results.
Supermicro’s strong track record has resulted in share price gains of 438% since AI took the spotlight early last year. This encouraged the company to announce a 10-for-1 stock split early last month. Loop Capital analyst Ananda Baruah maintains a buy rating and Street-high price target of $1,500 on the stock. That represents potential upside of 240% compared to Tuesday’s closing price.
The analyst cites Supermicro’s position in the AI server industry and the company’s leadership in terms of complexity and scale. He further suggests the company’s sales will accelerate to a run rate of $40 billion by the end of fiscal 2026, up from management’s forecast of $28 billion in fiscal 2025.
Many of his colleagues on Wall Street are behind him. Of the 17 analysts who covered the stock in August, 12 rated the stock a buy or strong buy, and none recommended selling.
A note on valuation
It’s important to note that these stocks have valuations commensurate with the opportunity. Nvidia, Broadcom, and Supermicro are currently trading for 38 times, 32 times, and 13 times forward earnings, compared to a price-to-earnings (P/E) ratio of 29 for the S&P 500.
That said, given their track record of robust growth and the secular tailwinds resulting from AI, I would argue they are still attractively priced.
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