Nvidia unveiled a 10-for-1 stock split after a historic run for the stock. This semiconductor bigwig could be the next to split its shares.
The advent of artificial intelligence (AI) has been a boon to many companies, but arguably none more so than Nvidia (NVDA -0.09%). As the leading supplier of processors used for AI, the company has experienced unprecedented growth. In the company's fiscal 2025 first quarter (ended April 28), Nvidia's revenue grew 262% year over year to $26 billion, while its earnings per share (EPS) soared 629% to $5.98. This marked the fourth consecutive quarter of triple-digit sales and profit growth. This has driven Nvidia's stock price up 650% since the start of 2023.
In conjunction with its financial report, Nvidia announced a 10-for-1 stock split, which will be initiated after the market close on Friday, June 7. The stock will begin trading on a split-adjusted basis beginning on Monday, June 10. Nvidia noted in its announcement that the split was to "make stock ownership more accessible to employees and investors."
From a historical perspective, stock splits follow a period of sustained business and operational performance, which fuels the rising stock price. While this describes Nvidia to a tee, there are other companies benefiting from the proliferation of AI. One such company that could also be poised for a stock split is Broadcom (AVGO 0.38%).
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A chip off the old block
Broadcom is one of the world's largest custom semiconductor suppliers, but that's just the beginning. The company supplies a broad cross-section of products used in data centers, cloud computing, networking, broadband, wireless, infrastructure, storage, AI, and more. Many of Broadcom's products form the backbone of the AI ecosystem.
Such a broad array of products can be both a blessing and a curse. For example, the cyclicality in wireless communications has been a drag on business in recent years, even as its AI business has ramped up. On the other hand, as one of the leading suppliers of 5G wireless chips and systems, Broadcom is well-positioned to benefit from a rebound in the space.
Overall, Broadcom's business is accelerating. In the first quarter, revenue of $12.9 billion climbed 34% year over year, while its adjusted earnings per share (EPS) of $10.99 edged just 6% higher as the company worked to digest its recent acquisition of VMWare. Management expects Broadcom's strong growth to continue, guiding for full-year revenue of $50 billion, which would represent growth of 40%.
A solid stock split candidate
A look at Broadcom's track record and current price helps explain why the company is a solid stock split candidate. Over the past decade, Broadcom has grown its revenue by 843% (as of this writing) while its net income jumped 882%. This solid operating and financial performance has lit a fire under the stock, which is up an impressive 1,740% -- all without the massive opportunity represented by generative AI.
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To be clear, Broadcom has never initiated a stock split, but that doesn't mean it's not a prime candidate. The stock price clocked in at nearly $1,322 when the market closed on Monday, making it among the top 15 most expensive stocks trading on U.S. markets.
There's more. One of the by-products of the brisk adoption of AI is the stunning upgrade cycle taking place in the data center space. The servers that currently pack many data centers lack the computational horsepower necessary to run AI. Bank of America analyst Ruplu Bhattacharya estimates the resulting upgrade cycle will cause the data center market to grow at a compound annual rate of 50%, on average, over the coming three years. As one of the leading providers of technology used in data centers, Broadcom is well-positioned to benefit from this secular tailwind.
The accelerating pace of AI adoption could represent the most compelling opportunity for Broadcom. Management recently revealed that software revenue soared 156% year over year and now estimates that AI-related revenue will climb to $10 billion, representing 35% of Broadcom's semiconductor solutions revenue and 20% of its total revenue in fiscal 2024.
That isn't a reach considering the magnitude of the AI opportunity. Generative AI is expected to generate revenue in a range of $2.6 trillion to $4.4 trillion annually over the next 10 years, according to global management consulting firm McKinsey & Company. That estimate essentially doubles if the impact of embedded software is included.
Finally, at roughly 28 times forward earnings, Broadcom's valuation is just a slight premium compared to a multiple of 27 for the S&P 500. But that's not an apples-to-apples comparison since Broadcom has delivered nearly 10 times the returns of the S&P 500 over the past decade. That, combined with its position in the AI ecosystem and significant growth potential, illustrate why Broadcom represents a compelling opportunity -- even if it doesn't initiate a stock split.
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Danny Vena has positions in Nvidia. The Motley Fool has positions in and recommends Bank of America and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
