There is evidence that stocks that undergo stock splits tend to outperform the overall market.
Stock splits have seen a resurgence in popularity in recent years. Although common throughout the 1990s, stock splits were largely forgotten, but have made a comeback in the last decade. Companies typically embark on stock splits after a few years of strong performance and financial performance, resulting in a surge in the stock price. The possibility of a stock split typically causes investors to take a fresh look at the company, and for good reason.
The strong performance that triggers a stock split tends to continue and generate further profits afterward: Research has shown that companies that implement stock splits see an average 25% increase in profits in the year following the announcement, compared with just a 12% increase for companies that do not split. S&P 500According to data compiled by Bank of America Analyst Jared Woodard.
Here are three stock-splitting stocks that still have a long way to go, according to Wall Street analysts.
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NVIDIA: Up 82%
The first stock split with big upside potential is NVIDIA (NVDA -1.59%)The company's pioneering work on graphics processing units (GPUs) has made it the de facto standard-bearer for recent advances in artificial intelligence (AI).
The chips that revolutionized the gaming industry have proven just as good at accelerating data over the internet, making them a first choice among cloud computing and data center operators. They also speed up processing of AI models, helping Nvidia become the gold standard for generative AI.
NVIDIA reported its highest quarterly revenue ever in its fiscal second quarter 2025 (ended July 28), up 122% year over year to $30 billion, and diluted earnings per share (EPS) increased 168% to $0.67. The highlight was the phenomenal performance of the company's data center division (which includes AI chips), where sales soared 154% to $26.3 billion.
The rise of AI has seen Nvidia's stock soar, up 716% since the start of 2023 and sparking a much-talked-about 10-for-1 stock split in June. The company's shares have been in a lull in recent months as investors questioned the staying power of one of the market's best-performing companies, but many on Wall Street believe that the adoption of AI is still in its infancy, a trend that could work in Nvidia's favor.
In an interview with CNBC earlier this month, Dan Niles, founder of Niles Investment Management, said he expects Nvidia's revenue to grow by 1.2 trillion yen over the next few years. and The stock is likely to double from current levels due to rising demand for AI, implying an 82% gain potential for investors compared to Wednesday's closing price.
He's not the only one who believes the future is bright: 55 of the 60 analysts covering the stock in August rated it a buy or strong buy. none Selling recommendation.
I remain bullish on Nvidia and expect its stock price to exceed $200 by 2026, and that forecast remains unchanged.
Nvidia shares are currently selling for 39 times forward earnings, which may seem expensive at first glance, but consider this: Wall Street expects the company's earnings to grow an average of 53% over the next five years, suggesting that Nvidia shares deserve a premium price.
Sirius XM Holdings: Expected to rise 179%
The second stock split with big upside potential is Sirius XM Holdings (Siri 3.87%)When it comes to satellite radio services in North America, the company is unmatched: Sirius has 34 million paying subscribers, and with ad-supported music streaming service Pandora, the listener base is unmatched, with an audience of 150 million.
High inflation rates over the past few years have forced people to make tough choices about their disposable income, leading some to not renew their Sirius subscriptions. This, combined with a fundamental misunderstanding by investors about the recent merger and subsequent reverse stock split, has caused the company's shares to fall 56% so far this year. Despite the company's poor performance, the stock price decline is clearly an overreaction.
In the second quarter, Sirius revenues were down 3% year over year to $2.18 billion, and EPS was flat at $0.08. Paid subscriber numbers fell by 100,000 (about 1.5%), but churn continues to decline ahead of an expected recovery, which is an improvement.
Despite the stock's decline, some on Wall Street believe the selloff has gone too far. Benchmark analyst Matthew Halligan is one of them. He maintains a buy rating on SiriusXM and a post-split price target of $65, which represents a 179% upside potential compared to Wednesday's closing price. He cites “market dislocation” from the company's recent merger with tracker Liberty SiriusXM. He also believes management's “strategic initiatives” will bear fruit.
Moreover, the falling stock price presents an attractive valuation for smart investors: Sirius XM is currently selling for roughly seven times earnings, with little to no consideration for future growth.
We think the analysts are accurate, as improving macroeconomic conditions will likely reignite Sirius XM's growth and drive its stock price higher.
Supermicrocomputer: Expected increase of 243%
The last of the three stock split stocks with upside potential is Super Microcomputer (SMCI 4.59%)Commonly known as Supermicro, the company has been designing custom servers for more than 30 years and is seeing new levels of demand as AI adoption accelerates.
The secret to the company's success is Supermicro's rack-scale server building-block architecture, which allows customers to design systems that meet their specific needs. Plus, the company is a leading provider of servers with direct liquid cooling (DLC), which has become all but mandatory in the age of AI-focused data centers. CEO Charles Liang suggests that Supermicro's DLC market share is now between 70% and 80%.
Supermicro reported record revenue for its fiscal fourth quarter ended June 30. Revenue increased 143% year over year to $5.3 billion and 38% sequentially. Adjusted EPS increased 78% to $6.25.
The report prompted a knee-jerk reaction from investors who sold off the company's shares, worried about eroding profit margins. Liang blamed the problem on a change in product mix caused by component bottlenecks and said the situation should improve soon.
Supermicro's strong performance has seen its shares rise 432% since strong demand for AI-centric systems began in early 2023. As a result, the company initiated a 10-for-1 stock split early last month.
Loop Capital analyst Ananda Baruah is maintaining his buy recommendation on the stock and a Street-high $1,500 price target, which indicates a 243% upside potential compared to Wednesday's closing price.
The analyst is bullish on Supermicro's position in the AI server market, citing its leadership in scale and complexity. The analyst estimates the company's sales will accelerate to $40 billion by the end of fiscal 2026, beating management's guidance of $28 billion in revenue for fiscal 2025.
We think the analysts are right, as Supermicro continues to gain market share at the expense of its competitors.
Many Wall Street analysts agree: Nine of 18 analysts who commented in August rated the stock as a buy or strong buy, and none recommended selling.
Moreover, at 22 times earnings and less than 2 times sales, Supermicro fits the very definition of an attractively priced stock.
