Tuesday, April 16, 2024

AI Stocks Soar on Nasdaq’s Artificial Intelligence Euphoria as Investors Clamor for Cut of the Future

HomeStock-MarketAI Stocks Soar on Nasdaq's Artificial Intelligence Euphoria as Investors Clamor for...

NEW YORK — The artificial intelligence gold rush has swept Wall Street into a frenzy, sending once-obscure companies to sky-high valuations as investors seek to claim their share of what they believe will be a highly lucrative technology in the years ahead.

Leading the charge are firms specializing in AI semiconductors and cloud infrastructure, both foundational technologies expected to be in high demand as AI is embedded across the global economy. With triple-digit growth already underway at some firms, talk of potential stock splits is heating up — a way for companies to make their high-priced shares more accessible to a wider pool of buyers.

“This feels very similar to the dot-com boom of the late 1990s,” said Nick Parker, an investment analyst at Morrison Capital. “There is a ‘fear of missing out’ mentality taking over among investors, which often precedes a correction. But there are also very real technology breakthroughs happening in AI that could drive tremendous profits for years.”

The benchmark S&P 500 index recently surged past 5,000 points for the first time ever, while the tech-focused Nasdaq has ripped higher by 33% over the past 12 months. Leading names like Super Micro Computer and Nvidia have become market darlings with gains exceeding 200% apiece. Even Meta Platforms, once left for dead after last year’s advertising slump, has come roaring back in 2024 on renewed investor enthusiasm for its long-term metaverse and AI plans.

With share prices entering the stratosphere, analysts say opportunistic stock splits could further fan the flames of speculative fervor surrounding AI. Here are three top candidates for splits to capitalize on all the excitement:

Super Micro Computer Looks Primed for Maiden Split After 774% Surge

If there is one company that exemplifies the euphoria around AI, it may be Super Micro Computer. The maker of server technology tailored for AI workloads was a relatively unknown firm trading around $85 per share in early 2023. Then the AI wave hit, sending orders for the company’s hardware through the roof. Its stock price responded in kind, rocketing an astonishing 774% higher over the subsequent 12 months to over $800 per share.

To put that move in perspective, it took Microsoft — no slouch in its own right when it comes to share price gains — eight years to generate a similar return. It is the type of moonshot performance not seen since the early 2000s, when triple-digit tech gains were a dime a dozen amid the dot-com bubble.

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With business still booming, Super Micro finds itself in uncharted territory. Never once in its 17 years as a public company has management conducted a stock split to cut the share price — somewhat understandable given its prior obscurity. But with its valuation now exceeding $40 billion and momentum showing no signs of slowing, analysts say conditions appear ripe for the company’s first-ever split.

“I think a split here would make a lot of sense,” said Jonas Little, a tech sector analyst at Boyd Financial. “It would make the shares more accessible to retail investors while also increasing liquidity. For a stock trading near all-time highs with incredible buzz around AI, you can certainly make the case this is the time.”

After crushing earnings expectations in late January and lifting full-year guidance, Super Micro finds itself on seemingly every growth investor’s radar. Demand for its bread-and-butter server racks has gone vertical as hyperscale data center operators bulk up capacity to accommodate surging AI workloads. Cloud giants like Amazon, Microsoft, and Alphabet are expanding at a torrid pace.

“Our results demonstrate strong year-over-year growth driven by our Total IT Solutions strategy,” said Charles Liang, chairman and CEO of Super Micro. “The AI market is still in early innings. We are ideally positioned with the broadest portfolio of optimized solutions to ride this wave.”

If Super Micro stays on its current trajectory, a split to drive its $800+ share price lower may not be far behind. Given Wall Street’s unquenchable appetite for AI exposure, such a move would likely stoke even greater interest in the red-hot stock.

Nvidia Split Could Woo Dow Jones as AI Chip Dominance Propels Record Profits

Another AI supplier basking in good fortunes is Nvidia, the dominant force in graphics processing units optimized for AI workloads. Its shares are up nearly 250% over the past 12 months amid an explosion of demand for specialty semiconductors to power new generations of AI applications.

Having essentially conquered the data center chip niche with an estimated 85% market share, Nvidia finds itself in the catbird seat as AI development shifts into overdrive. Market researcher Allied Data pegs 38% annual growth for AI chips over the next decade, a staggering projection that sets the stage for windfall profits.

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Nvidia is already reaping rewards. In its most recent quarter ending October 2023, revenue catapulted 206% versus the prior year to top $18 billion — a simply astounding result driven by AI chips. With profit margins expanding sharply amid the bonanza, net income increased nearly 14-fold to surpass $9 billion.

If those financial metrics seem otherworldly, so too does Nvidia’s valuation: nearly $2 trillion, making it the world’s fourth most valuable company behind Apple, Microsoft, and Alphabet. At around $750 per share, its stock price exceeds the range where management enacted a 4-for-1 split back in mid-2021.

So could another split be forthcoming? Analysts say the timing looks right if Nvidia wishes to broaden its investor base and attract extra demand. There could also be prestige on the line: at its towering valuation, Nvidia appears a natural fit for admission into the Dow Jones Industrial Average, perhaps the world’s most fabled stock index.

There is just one catch — the Dow is a price-weighted benchmark, meaning share prices directly factor into index weighting. With Visa currently the highest-priced Dow component at around $230 per share, Nvidia would severely skew the index upon entry. A split to reduce its nominal share price would make it a more suitable candidate.

“I think the Dow angle is really interesting here,” said Cooper Edison, a senior equities strategist at Parkman Wealth. “Prestige aside, getting added would open Nvidia up to a host of new index funds and ETF investors. A split primes the pump.”

Of course, rapid growth and rising influence already prime Nvidia’s pump plenty on existing business merits. But with Wall Street always eager to spin a compelling narrative, a upcoming split timed around potential Dow induction could stoke even more fervor for AI’s dominant chipmaker.

Meta Platforms: Once Left for Dead, Could a 2024 Split Cap Historic Turnaround?

Perhaps no AI hopeful has experienced more extreme highs and lows over the past 18 months than Meta Platforms. After years of handsome returns driven by social media advertising, Meta confronted harsh business headwinds in 2022 that sliced its stock price by nearly 75% in a matter of months.

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With profits plunging, pessimism reigned supreme into early 2023 as investors seemed to lose confidence in CEO Mark Zuckerberg’s long-term metaverse vision. But a fierce cost-cutting campaign coupled with stabilization in ad revenue powered a miraculous comeback. Meta stock has nearly quintupled off its lows, roaring back above $450 per share to recapture over $1 trillion in market capitalization.

While business improvements fueled much of the rebound, analysts say Meta also benefited from two crucial tailwinds. One, user engagement on the company’s social platforms like Facebook and Instagram kept humming right along, expanding its reach over 4 billion people worldwide. And two, Meta never once slowed investment into next-generation AI computing infrastructure that could power future revenue growth.

“I think the market overlooked for a while just how advanced Meta already is on the AI front,” commented Paula Curtis, a senior analyst at HC Securities. “Zuckerberg didn’t just spend all those billions in Reality Labs R&D for fun — it is the backbone for major AI progress that probably starts emerging over the next 3-5 years.”

With the stock still reasonably valued trading at 23 times forward earnings forecasts, analysts believe Meta deserves far more credit for executing a 180-degree turnaround that puts it back on solid footing. And while its share price remains well below last year’s peak above $350, interest in consumer-facing AI applications makes it a compelling long-term play in a futurist industry.

In that context, might a 2024 stock split make sense to extend Meta’s momentum even further? With the company expected to deliver 20% annual earnings growth in the years ahead, a split could certainly broaden investor access at a time of revival. It would also represent a major vote of confidence after last year’s stumbles, as well as mark a symbolic milestone as the first such split in Meta history.

Of course, fundamentals still determine long-run value creation. But with investor enthusiasm for AI white-hot right now, a well-timed split could inject an extra jolt of energy into shares of a company primed for AI prosperity. For Meta and its embattled-but-visionary leader in Zuckerberg, a chance to fully turn the page on last year’s misfortunes might prove highly appealing both optically and financially.

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Mezhar Alee
Mezhar Alee
Mezhar Alee is a prolific author who provides commentary and analysis on business, finance, politics, sports, and current events on his website Opportuneist. With over a decade of experience in journalism and blogging, Mezhar aims to deliver well-researched insights and thought-provoking perspectives on important local and global issues in society.

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