History shows that stocks that have split their stock tend to continue to outperform other stocks.
One of the most interesting developments for investors over the past few years has been the renewed popularity of stock splits. Stock splits were common in the late 1990s but fell out of favor, but have become popular again in recent years. This corporate action is typically taken in response to years of strong operating and financial performance, ultimately leading to higher stock prices.
History shows that top performing companies tend to stay in business full steam ahead. Companies that issue stock splits generate an average 25% stock price appreciation in the year following the announcement, while companies that do not split their stock generate an average 12% stock price appreciation in the year following the announcement. S&P 500According to data compiled by Bank of America Analyst Jared Woodard.
Here are three stock splitting stocks that have room for growth, according to Wall Street analysts.
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Broadcom: Expected growth of 76%
The first stock split with big growth potential is Broadcom (AVGO 1.73%)The company offers a wide range of software, semiconductor and security products across cable, broadband, mobile and data center segments, making it the envy of the technology industry. Broadcom says that “99 percent of Internet traffic passes through some Broadcom technology,” making it a key player in the ongoing artificial intelligence (AI) revolution.
Recent results suggest that business is thriving. Second-quarter revenue was $12.5 billion, up 43% year over year, and adjusted earnings per share (EPS) increased 6% to $10.96. It’s worth noting that the recent VMWare acquisition has weighed on the company’s margins, but management expects margins to normalize by 2025. The company expects continued strong growth going forward, raising its full-year revenue forecast to $51 billion, up 42%.
The company’s execution and strong growth to date led Broadcom to issue a 10-for-1 stock split in mid-July. Despite a 152% rally since the start of last year, many on Wall Street remain very bullish. Just before the stock split last month, Rosenblatt analyst Hans Mosesmann reaffirmed his buy recommendation and raised his price target to a split-adjusted $240. This represents a 76% upside potential for investors compared to Wednesday’s closing price.
Analysts believe that accelerating adoption of generative AI will boost sales of AI-related hardware, such as application-specific integrated circuits (ASICs), networking, and switching chips, and they expect VMWare consolidation to start making a major contribution.
He’s not alone in his bullish outlook on Broadcom. Of the 38 analysts who commented on the stock in July, 33 rated it a “buy” or “strong buy,” while 33 of them rated it a “strong buy.” none Selling recommendation.
Nvidia: 99% chance of upside
The second stock split with great potential is NVIDIA (NVDA -0.21%)The company is a leading supplier of graphics processing units (GPUs) used in video games, cloud computing and data center operations, which has allowed Nvidia to quickly corner the market for chips used in generative AI and drive huge sales growth because these GPUs provide the computing power that AI needs.
NVIDIA reported record revenue of $26 billion in the first quarter of fiscal 2025 (ended April 28), up an astounding 262% year over year. As a result, diluted EPS increased 629% to $5.98. The performance was driven by the data center division, which includes AI processors, whose sales grew 427% to $22.6 billion.
Nvidia’s phenomenal performance has sent the company’s stock up 600% since the start of 2023 and prompted a high-profile 1-for-10 stock split in June. But some on Wall Street believe there’s still more to come. Mosesman rates Nvidia a “buy” and has a Street-high $200 price target, which suggests a 99% upside potential compared to Wednesday’s closing price.
The analyst believes many of his colleagues don’t understand the importance of the software that’s integrated into Nvidia’s AI processors and gives the company a big competitive advantage. “We expect this software side to grow significantly in terms of overall revenue mix over the next decade, providing an upward sustainability bias to the valuation,” Mosesman wrote in a client note.
He’s not the only one who believes there’s more to come: 53 of the 58 analysts covering the stock in June rated it a buy or strong buy, none Selling recommendation.
Supermicrocomputer: Expected increase of 204%
The last of the three stock split stocks with plenty of room for price growth is Super Microcomputer (SMCI -0.23%)aka Supermicro. The company has been supplying custom servers to the technology industry for over 30 years. Supermicro’s building-block approach to rack-scale servers with direct liquid cooling technology is perfectly suited to the rigors of AI processing, as is the company’s legendary focus on energy efficiency.
Supermicro has strong working relationships with all the major chip manufacturers, ensuring availability of the most in-demand processors, including those from Nvidia. Advanced Micro Devicesand Intel.
Supermicro delivered record revenue of $5.3 billion in its fiscal fourth quarter (ended June 30), up 143% year over year and 38% sequentially, which led to adjusted earnings per share (EPS) of $6.25, up 78%.
Some investors have been concerned about the company’s declining profit margins, but CEO Charles Liang said the company was experiencing bottlenecks in some server parts, causing some deals to slip to the next quarter, which resulted in a change in product mix and more lower-margin sales. Liang said he expects the company’s profit margins to bounce back in future quarters.
Supermicro’s strong performance has sent its stock price up 516% since the beginning of last year, and it announced a 10-for-1 stock split this week. Some on Wall Street think this is just the beginning. Loop Capital analyst Ananda Baruah rates the company’s shares a “buy” and has a Street-high price target of $1,500. That represents a 204% upside potential compared to Wednesday’s closing price.
Analysts believe investors continue to underestimate Supermicro’s sales potential, suggesting the company could achieve revenue growth of $40 billion in fiscal 2026, up from less than $15 billion at the end of fiscal 2024. Management is also forecasting similar performance, with net sales of about $28 billion at the midpoint of its fiscal 2025 guidance.
Wall Street seems to agree: 12 of 17 analysts who commented in July rated the stock a buy or strong buy. none Selling recommendation.
A note about ratings
All of these stock splits have growth prospects ahead, but despite those prospects, they remain attractively priced. Nvidia, Broadcom and Supermicro currently trade at 36, 29 and 14 times forward earnings, respectively, compared with the S&P 500’s P/E of 27. While two of the three are a bit pricey compared to the broader market, their historical track record, strong share price growth and solid future prospects make them well worth investing in.
