Nvidia's Stock Split Success and Its Impact on the AI Market

This Stock-Split Stock Could Soar If Nvidia Delivers a Blowout Q2 Update

Which company is the center of attention this week? It's Nvidia (NVDA -2.25%), hands down. The chipmaker will announce its second-quarter earnings results following the market close on Wednesday. I fully expect Nvidia's numbers to delight investors again, enabling it to extend its already impressive gains this year. But there's another stock-split stock that could also soar if Nvidia delivers a blowout Q2 update. Joined at the hip Super Micro Computer (SMCI -8.27%), also called Supermicro, is arguably joined at the hip with Nvidia. The company provides server and storage solutions that are especially popular in data centers. The same artificial intelligence (AI) tailwind fueling Nvidia's growth also helps Supermicro. Charles Liang, Supermicro's president and CEO, said earlier this month that his company "continues to experience record demand of new AI infrastructures." As a result, Supermicro's revenue in the fourth quarter of its fiscal 2024 soared 110% year over year. If Nvidia handily beats expectations with its Q2 results on Wednesday (and, more importantly, if the company's guidance is strong), it will bode well for Supermicro's fortunes over the near term. I look for Nvidia to also provide some clarity on the timing of when chips based on its new Blackwell architecture will begin shipping. This should also help Supermicro, which has liquid-cooled AI superclusters ready to support Blackwell. Sure, Liang maintains that a delay for Blackwell won't impact Supermicro much because it does business with other chipmakers. Make no mistake about it, though: Good news from Nvidia will translate to good news for Supermicro. Will Supermicro's stock split provide another catalyst? I don't think there's much doubt that a blow-out Nvidia Q2 update would provide a catalyst for Supermicro. But what about the company's 10-for-1 stock split scheduled for Oct. 1? It's iffy, in my view. For one thing, Supermicro's stock split won't change anything at all about the company's underlying business or its growth prospects. On the other hand, spectacular guidance from Nvidia would likely mean stronger growth ahead for Supermicro. Any investor who really wanted to buy shares of Supermicro could do so even with its share price trading in the ballpark of $600. Many online brokerages support buying fractional shares. However, this will be Supermicro's first stock split. I'll admit that it's possible some investors who have remained on the sidelines could view the split as a great opportunity to buy the stock. I suspect the allure to invest in Supermicro could be even greater if the stock indeed soars as I expect it will following Nvidia's quarterly update this week. Is Supermicro a better stock to buy than Nvidia? Now for an even more important question: Is Supermicro a better stock to buy than Nvidia? Wall Street seems to think so. The consensus 12-month price target for Supermicro of analysts surveyed by LSEG in August reflects an upside potential of over 50%. By comparison, the average price target for Nvidia is slightly lower than its current price. I agree that Supermicro is a better pick than Nvidia. My primary reasoning is valuation. Supermicro's shares trade at a much lower forward earnings multiple than Nvidia's. But if Nvidia gives great news to investors on Wednesday, both of these stocks should be big winners.

3 Stock-Split Stocks Soared 2,909% to 4,121% in the Last 5 Years (Hint: Nvidia Ranks Third) | The Motley Fool

Nvidia, Celsius, and Super Micro Computer were three of the fastest-growing U.S. companies during the last five years. The Russell 1000 is similar to the S&P 500 in that both indexes track large U.S. companies. However, while the S&P 500 includes approximately 80% of domestic equities by market capitalization, the Russell 1000 includes about 93% of domestic equities, meaning it covers more of the U.S. stock market. With that in mind, YCharts analyzed the Russell 1000 to identify the best-performing U.S. stocks during the five-year period that ended on June 30, 2024. Of course, artificial intelligence chipmaker Nvidia (NVDA -2.25%) ranked among the top three, but investors may be surprised by the other companies on the list. It's worth mentioning that all three companies have announced stock splits during the past year. Last year, Nvidia accounted for 98% of data center graphics processing unit (GPU) shipments. GPUs accelerate compute-intensive workloads like artificial intelligence (AI) applications. Baird analyst Ted Mortonson explained that dominance to Business Insider. "Over a decade ago, [CEO] Jensen Huang understood where the market was going to go, so [Nvidia] invested billions of dollars in not only silicon, but software." Indeed, Nvidia is truly formidable because it offers a robust suite of software development tools called CUDA. The platform helps developers prepare data and build applications across disciplines like computational chemistry and machine learning. Nvidia also bundles CUDA with frameworks and pretrained models that streamline the development of AI applications for robotics, conversational assistants, and many other use cases. Nvidia's dominance in data center GPUs has evolved into dominance in AI processors. Estimates differ slightly among analysts, but the company currently holds 70% to 95% market share in AI processors. That has translated into stunning financial results. Sales surged 644% during the last five years. The company has also become more profitable. Gross profit margin expanded 1,500 basis points during the same period. Accordingly, strong financial results have led to exceptional share price appreciation. Nvidia completed a 10-for-1 stock split in June, its second stock split in three years. Going forward, Grand View Research forecasts that graphics processor sales will increase at 27% annually through 2030. Nvidia is better positioned to capitalize on that opportunity than any other semiconductor company. Wall Street expects adjusted earnings to grow at 37% annually over the next three years. In my opinion, that estimate makes the current valuation of 76 times earnings look somewhat pricey, though not unreasonably expensive. Celsius (CELH 1.49%) is the third most popular energy drink brand in the United States behind Red Bull and Monster Beverage's Monster Energy, but the company is quickly closing the gap. Celsius has gained 425 basis points of market share since January 2023, but Red Bull and Monster Energy have lost 86 basis points and 308 basis points, respectively, according to a Celsius slide deck. What's driving those share gains? Celsius has cultivated a reputation as being a healthier alternative to other energy drink brands. Its beverages do not contain sugar, artificial flavors, or high fructose corn syrup, and clinical trials have proven that its proprietary ingredients increase metabolism and calorie burn with exercise. In short, Celsius has positioned itself as a fitness beverage commonly found in gyms and health clubs. CEO John Fieldly told Fortune, "Celsius was originally created as the world's only negative-calorie drink. It's clinically proven to burn 100 to 140 calories. There's science behind the product -- over six clinical studies." That foundation, coupled with effective marketing, has translated into eye-popping financial results. Revenue surged 2,310% during the last five years, while gross profit margin expanded 1,000 basis points during the same period. Going forward, Grand View Research expects energy drink sales to increase at 8% annually through 2030. But consumers are increasingly health-conscious, and Celsius is the energy drink brand best positioned to benefit, so its sales growth should exceed the industry average. Wall Street expects Celsius' earnings to increase at 11% annually through 2025. That estimate makes the current valuation of 38.8 times earnings look very expensive. Celsius has grown at an incredible pace, which led to a 3-for-1 stock split last November, but thriving businesses aren't always wise investments. I would keep this stock on my watchlist for now. Super Micro Computer (SMCI -8.27%) designs high-performance computing platforms for data centers, including servers and storage solutions for use cases like analytics and machine learning. The company's manufacturing capabilities and modular approach to product development have helped it secure a leadership position in the AI server market. To elaborate, Supermicro handles most R&D and manufacturing at facilities in Silicon Valley, and half of its employees in the San Francisco Bay Area are engineers. That "enables rapid prototyping and product roll-out," according to SEC filings. Additionally, the company uses common building blocks across product lines to quickly assemble a wide range of products featuring the latest chips from suppliers like Nvidia. Supermicro's ability to quickly build a broad range of products (including full server racks) tailored to customer requests has driven strong financial results, especially amid surging demand for generative AI infrastructure. Revenue increased 327% and GAAP earnings jumped 1,330% in the last five years. Investors have reason to believe that momentum will persist for the foreseeable future. Artificial intelligence server sales are projected to increase at 32% annually through 2030, according to analysts at JPMorgan Chase. Supermicro should be a major beneficiary of that trend. Indeed, Wall Street expects adjusted earnings to increase at 43% annually through fiscal 2026 (ends June 2026). That estimate makes its current valuation of 27.7 times adjusted earnings look quite reasonable. Investors should know that Supermicro recently announced a 10-for-1 stock split, so shares will be much cheaper in early October.