Artificial intelligence (AI)-inspired stock splits were a big theme in 2024 — and it may stay that way in the new year, based on the forecast of two analysts.
For the better part of two years, the bulls have been running wild on Wall Street. While these gains can prominently be traced to the rise of artificial intelligence (AI), AI isn’t the only catalyst responsible for sending the broad-market indexes to fresh highs.
The outsized gains in the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite in 2024 can also be attributed to excitement surrounding stock splits in some of Wall Street’s most-influential businesses.
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Stock-split euphoria took hold on Wall Street in 2024
A stock split is a tool publicly traded companies have in their proverbial well that they can use to cosmetically adjust their share price and outstanding share count by the same magnitude. These changes are superficial in the sense that they don’t impact a company’s market cap or underlying operations in any way.
Since this year began, more than a dozen prominent businesses have completed stock splits. Only one of these splits was of the reverse variety, which is designed to increase a company’s share price. Meanwhile, over a dozen were forward stock splits, which make shares of a publicly traded company more nominally affordable for retail investors and/or employees who aren’t able to purchase fractional shares.
Investors tend to gravitate to companies conducting forward splits for one key reason: sustained outperformance. Publicly traded companies that need to reduce their share price to make it more nominally affordable for everyday investors are almost always out-executing and out-innovating their peers. In short, they’re the type of businesses we’d expect to outperform over extended periods.
Perhaps unsurprisingly, AI stock splits were a big theme this year. Arguably the two most-prominent AI hardware players, Nvidia (NVDA -1.68%) and Broadcom, completed respective 10-for-1 forward splits in June and July.
However, the outlook for Wall Street’s stock-split stocks differs greatly as we steam toward the new year. Based on the forecasts of select Wall Street analysts, two AI stock-split stocks offer upside of up to 174% in 2025.
Super Micro Computer: Implied upside of 174%
The first stock-split stock that can catapult higher in 2025, based on the forecast of one Wall Street analyst, is customizable rack server and storage solutions specialist Super Micro Computer (SMCI -8.26%). Super Micro completed its first-ever split (10-for-1) following the close of trading on Sept. 30.
Despite a roller-coaster year, which I’ll address in greater detail in a moment, Loop Capital’s Ananda Baruah believes Super Micro’s stock can reach $100 per share. If Baruah’s prognostication were proved accurate, it would imply 174% upside from where shares closed on Dec. 13.
The bull thesis for Super Micro Computer is simple to understand. While Nvidia’s graphics processing units (GPUs) are the undisputed top choice to accelerate computing capabilities in enterprise data centers, Super Micro has been one of the top options in data center infrastructure. Businesses wanting to maximize their first-mover advantage are spending aggressively on the physical infrastructure needed to make that happen.
In early August, Super Micro Computer reported fiscal 2024 (ended June 30, 2024) sales grew by 110% to almost $15 billion. Incorporating Nvidia’s highly sought-after GPUs into its customizable rack servers is a big reason why demand for the company’s data center infrastructure has been virtually insatiable.
But things are far from perfect.
Just three weeks after Super Micro announced its full-year results, noted short-seller Hindenburg Research released a report alleging “accounting manipulation.” Since this report was released, Super Micro Computer has:
- Delayed filing its annual report with the Securities and Exchange Commission.
- Seen accounting firm Ernst & Young, which had previously raised concerns about its internal controls, resign as the company’s auditor.
- Been the subject of an early stage accounting probe by regulators, per The Wall Street Journal.
- Been booted from the Nasdaq-100.
- Enlisted Evercore for a possible capital raise.
Although an independent special committee doesn’t expect any financial restatements and anticipates remaining listed on the Nasdaq exchange, there are a lot of questions that remain unanswered until Super Micro Computer files its annual report and it’s signed off by an auditor.
With this being said, it’s unlikely that Super Micro makes a run at Wall Street’s loftiest price target in the new year.
Image source: Getty Images.
Lam Research: Implied upside of 49%
The other stock-split stock that one Wall Street analyst believes can soar in the new year is semiconductor wafer fabrication equipment company Lam Research (LRCX 2.06%). Lam’s board approved a (you guessed it!) 10-for-1 forward split in late May, which went into effect after the market closed on Oct. 2.
Out of the more than two-dozen analysts that cover the company, none is more optimistic than Berenberg Bank’s Tammy Qiu. Qiu’s $1,140 price target, which adjusted down to $114 per share to reflect Lam’s early October forward split, implies up to 49% upside in this semiconductor equipment colossus.
Similar to Super Micro Computer, Lam Research finds itself well positioned to take advantage of the AI revolution. Lam is one of the top suppliers of wafer fabrication equipment used by semiconductor companies.
More specifically, the company’s equipment packages high-bandwidth memory (HBM). HBM is responsible for speeding up computations and processing large amounts of data, which is a necessity when building and training large language models and running generative AI solutions. Lam Research is, effectively, a key cog in the infrastructure needed to facilitate the mainstream adoption of artificial intelligence solutions.
But like Super Micro Computer, there’s not a straight-line path to success. While Lam doesn’t have to contend with the accounting gray clouds that are hovering above Super Micro, there’s another glaring concern.
No geographic region is more important to Lam than China. During the June- and September-ended quarters, it generated 39% and 37% of its respective revenue from the world’s No. 2 economy. The problem is that U.S. regulators and the incoming Donald Trump administration may complicate things.
In 2022 and 2023, U.S. regulators restricted the export of high-powered AI chips and related equipment to China. This impacts the brains of AI data centers, such as Nvidia, as well as the manufacturers behind AI data centers, like Lam Research. With Trump aiming to impose a 35% tariff on Chinese imports on Day One of his second term, Lam’s top market for sales could quickly become a question mark.
Lam Research stock isn’t exactly a bargain, either. Based on its shares trading at close to 22 times fiscal 2024 (ended June 30, 2024) cash flow, it’s valued at a 21% premium to its average trailing-12-month cash flow over the last five years.
Lam Research will likely need U.S.-China relations to meaningfully improve if it’s to reach Qiu’s lofty $114 per share price target in 2025.
