Despite historically hot trends Artificial Intelligence (AI) The stock split mania that has dominated Wall Street headlines has played an equally impressive role in driving the overall market higher in 2024.
Simply put, a stock split is a tool that publicly traded companies can resort to to adjust their share price and the number of shares outstanding by the same factor. The benefit of a stock split is that it is entirely cosmetic and has no impact on the company’s market capitalization or underlying performance.
There are two types of stock splits: forward and reverse. far It is more popular than the latter in the investment community.
Reverse stock splits are undertaken to boost a company’s share price, often with the goal of maintaining the continued listing standards of major stock exchanges. Most reverse stock splits occur in times of weakness, so investors tend to steer clear of this type of reverse stock split.
Stock splits, on the other hand, are intended to lower a company’s share price to make it more affordable for retail investors who cannot purchase fractional shares through a broker. For a company with an overvalued share price, making it more affordable through a stock split usually requires better execution and innovation than its competitors.
Since the beginning of 2024, 13 Incredible Companies Announce or Complete Stock Splits — Nothing has been as anticipated as the massive growth of AI. NVIDIA (NASDAQ: NVDA)Considering that since 1980, companies that have split their stock have more than doubled their benchmark returns. S&P 500 Twelve months after the stock split announcement, investors are eager to predict which blue-chip stock will be the next to announce a stock split.
Nvidia had all the hallmarks of a Wall Street stock that would split.
Before Nvidia announced its largest stock split ever (10-for-1) on May 22, there were ample clues suggesting a stock split was imminent.
The obvious clue for NVIDIA is that its stock price rose 550% between the start of 2023 and the date of its first-quarter earnings report, when the company announced its historic stock split. No one on Wall Street has ever witnessed a market-leading company add roughly $2.8 trillion to its market cap in such a short space of time.
With that in mind, NVIDIA’s surprising returns have made it especially popular among retail investors, with the company being the fourth-most-held security (including exchange-traded funds) on retail-focused online trading platforms. Robin HoodThe fact that individual investors don’t need to save up $1,300 to buy a single Nvidia share could help maintain the euphoria behind the company’s near-parabolic rise.
Nvidia’s market-leading position among developers of graphics processing units (GPUs) for AI-accelerated datacenters also made it a logical candidate for a stock split. Semiconductor analytics firm TechInsights estimates that of the 2.67 million datacenter GPU shipments in 2022 and 3.85 million datacenter GPU shipments in 2023, Nvidia will account for all but 30,000 GPUs shipped in 2022 and 90,000 in 2023. The company dominates the GPU market share that powers generative AI solutions and trains large language models (LLMs) in enterprise datacenters.
The company’s CUDA computing platform is another reason why Nvidia split its stock. CUDA is a toolkit that helps developers build LLMs and accelerate computing applications. The key is that Nvidia’s software works in tandem with the company’s top-of-the-line hardware, keeping businesses loyal to the company’s myriad products and services.
With Nvidia laying out a blueprint for future stock split stocks to watch, there’s one logical candidate to watch.
Prediction: This 150,000% gain will be the next most-watched stock split announcement on Wall Street
When it comes to companies with brand names, track records and dominance, I expect Wall Street’s next high-water mark stock split announcement to come from a warehouse club. Costco Wholesale (NASDAQ: COST).
While stock prices don’t go up every year, Costco has come pretty close to breaking the mold. Including dividends, Costco has delivered positive total returns to shareholders in 20 of the last 23 years. Even more impressive, since its initial public offering (IPO) in December 1985, the company’s stock price, including dividends, is up 150,000%.
It’s been nearly a quarter century since Costco last split its stock; the previous three were in January 2000 (2-for-1), March 1992 (3-for-2) and May 1991 (2-for-1). With the company’s stock price approaching $900, it’s fair to assume that some retail investors who don’t have the ability to buy fractional shares are being forced to sit on the sidelines.
Costco’s biggest and most obvious competitive advantage is its size. The company’s deep pockets allow it to buy products in bulk, lowering the unit price of each item. Because price is such an important concern to consumers, Costco’s bulk purchases allow it to consistently keep costs lower than traditional grocery chains and independent stores.
It’s important to note that Costco’s warehouses sell a mix of discretionary and essential items. Regardless of how strong the U.S. economy is or what the inflation rate is, consumers need to buy groceries and basic necessities. In other words, Costco attracts consumers in all economic conditions, which typically results in very predictable sales and operating cash flow.
Another clear advantage Costco brings to the table is its membership-based operating model. Annual membership fees generate high profit margins, offsetting the low prices and slim profit margins on groceries and helping the company attract new members. Additionally, paying an annual membership fee to shop at Costco may encourage consumers to make the most of their membership, meaning they will choose Costco over other shopping destinations when making major purchases.
The final piece of Costco’s puzzle is its outsized pricing power: Starting Sept. 1, annual fees for Gold Star and Business members will rise $5 to $65, and Executive members will rise $10 to $130. It’s the first membership increase since 2017, but it’s unlikely to scare off the warehouse store’s loyal customers.
So don’t be surprised if when Costco reports its fourth-quarter results on September 26, it also announces its first stock split since January 2000.
Should I invest $1,000 in Costco Wholesale right now?
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Shawn Williams The Motley Fool 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 recommended the following stocks: Disclosure Policy.
Prediction: The next stock split announcement on Wall Street will come from a company that has gained 150,000% since its IPO. Originally published on The Motley Fool
