These Two Companies Could Cause a Wave of Excitement with Major Stock Splits

NvidiaThe company’s stock split earlier this year led to a period of big valuation gains, and the artificial intelligence (AI) leader is certainly not the first company to benefit from a post-split growth dynamic.

While stock splits don’t change the fundamentals of a business, there are reasons why investors like them. By dividing a number of shares into a larger number of shares, a company makes its shares potentially more accessible and attractive to a wider range of investors. A stock split can also be a reflection of a company doing well.

Now that Nvidia’s stock split is behind us, some investors may be looking for the next value play in the split. If that’s you, read on to find out why two Motley Fool contributors think these companies should be on your radar. One has already announced an upcoming split, and the other may be close to making that move.

This Nvidia client is getting ready to split 10 for 1

Keith Noonan: Supermicrocomputer (NASDAQ: SMCI) manufactures high-performance servers that incorporate Nvidia graphics processing units (GPUs) as their central hardware components. Demand for the company’s rack servers has skyrocketed as it deploys and trains artificial intelligence (AI) services.

In turn, explosive sales and earnings growth have helped boost the company’s stock price by 158% over the past year. Even after a recent earnings pullback, the stock is still trading above $600 per share.

On August 6, Supermicro (as it is commonly known) reported results for the fourth quarter of its last fiscal year, which ended June 30. While the company managed to increase sales by 143% year over year and profits by 78% in the quarter, profit for the period fell short of Wall Street expectations due to lower-than-expected gross margins.

In conjunction with its August quarterly results, Supermicro announced that it would be conducting a 10-for-1 stock split on October 1. Shares initially fell following the Q4 report due to a lack of earnings, but the company’s stock price has rebounded, and excitement about the upcoming split could soon increase.

Interestingly, Supermicro stock has often made trading moves that mirror Nvidia’s. While this is partly due to the AI ​​leader’s overall influence on sentiment in the AI ​​space, Nvidia’s earnings reports are a significant indicator of Supermicro’s business performance. If Nvidia posts strong results on August 28, there’s a good chance that Supermicro stock will see an increase in bullish sentiment.

The story continues

Nvidia is also likely to provide an update on the release schedule for its upcoming Blackwell processors. While some comments from Supermicro suggested that the next-generation processors could be delayed, later reports suggested that any delay could be relatively minor. If so, it would likely be a bullish catalyst for both AI stocks.

Fresh off a wild ride, Supermicro is down about 47% from its peak. Ultimately, sales and earnings will play a much bigger role in the stock’s performance than the upcoming split, but the conditions may be set for a comeback rally. With Supermicro poised to split just over a month after Nvidia reported its long-awaited earnings, excitement about the server specialist could be back in high gear.

Creating value for buyers and shareholders

Jennifer Saibil: Costco Wholesale (NASDAQ: COST) has already captured the attention of investors in the past few months with its largest ever special dividend, board changes and recently a much-anticipated increase in membership fees. It has shown fantastic results despite inflation, with its shares up 57% over the past year.

It is also approaching four-digit prices. It is approaching record levels and has not split shares since 1992.

Management constantly talks about creating value for its customers. That mission drives everything it does, from delaying a fee increase to its recent crackdown on shared memberships. It makes sense that it wants to make sure it creates value for shareholders and potential shareholders, and that often means making shares available to investors who think high-priced stocks are out of reach.

As Costco stock continues to rise, a stock split seems increasingly likely. And don’t expect the stock to slow down anytime soon. It has a lot of growth drivers and has been a reliable source of steady growth throughout its history. It has been resistant to inflation, and growth could accelerate as inflation stabilizes. Sales rose 9.1% in the third quarter of fiscal 2024 (ended May 12), with comparable sales up 6.6%. E-commerce, which is growing as a percentage of total retail sales, was strong with a 20.7% increase.

More people are shopping at Costco, and they’re doing it more often. The number of member households increased 7.8% year over year in the quarter, and traffic was up 6.1%. The average ticket price was about the same, but that should change as shoppers become more comfortable spending money on larger, more expensive items, which should boost sales.

Investors shouldn’t overlook Costco’s expansion opportunities, both domestically and internationally. Management said that in some high-traffic areas, customers were avoiding the company’s stores because they were too crowded, leading to lost sales. Adding stores in densely populated areas created more sales opportunities, rather than cannibalizing existing stores. In addition, there are regions throughout the United States that are under-penetrated, and the international market is still wide open.

Expect Costco stock to continue to rise. Since it does, a stock split could be coming soon.

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Jennifer Saibil has no position in any of the stocks mentioned. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale and Nvidia. The Motley Fool has a disclosure policy.

Beyond Nvidia: These 2 Companies Could Make Waves With Big Stock Splits was originally published by The Motley Fool