Stock Splits Drive Wall Street Gains Amid AI Boom

For nearly two years, bulls have dominated Wall Street. Much of this success is linked to the rise of artificial intelligence (AI), but other factors also play a significant role in pushing major indexes to new heights.

The remarkable gains in the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite during 2024 can also be linked to the buzz around stock splits from key players in the market.

Image source: Getty Images.

Frenzy Over Stock Splits in 2024

A stock split is a tactic used by publicly traded companies to adjust their share price and total number of shares. These changes do not fundamentally alter a company’s market value or business operations.

In 2024 alone, more than a dozen major companies executed stock splits, with only one being a reverse split aimed at increasing share prices. The rest were forward splits, making shares more affordable for everyday investors and employees who cannot buy fractional shares.

Investors are often attracted to companies that perform forward splits, largely due to their impressive growth records. Firms that reduce share prices typically demonstrate stronger execution and innovation relative to their competitors, suggesting a consistent outperformance over time.

This year particularly highlighted stock splits in the AI sector. Notably, both Nvidia (NASDAQ: NVDA) and Broadcom implemented 10-for-1 forward splits in June and July, respectively.

Looking towards 2025, some analysts predict mixed futures for these stock-split companies. Notably, two AI stock-split firms are forecasted to produce up to 174% gains.

Super Micro Computer: Potential for 174% Growth

The first candidate for significant growth is Super Micro Computer (NASDAQ: SMCI). This company, specializing in customizable rack servers and storage solutions, executed its first-ever 10-for-1 split after trading ended on September 30.

Despite a tumultuous year, analyst Ananda Baruah of Loop Capital believes Super Micro’s stock could climb to $100 per share. This target implies a remarkable 174% upside based on its closing price on December 13.

The appeal of Super Micro lies in its strategic integration of Nvidia’s sought-after GPUs into its infrastructure. As demand for advanced data center solutions grows, businesses are investing significantly to optimize their systems.

In early August, Super Micro announced a 110% increase in fiscal 2024 sales, nearing $15 billion, largely driven by its collaboration with Nvidia.

However, challenges remain. Shortly after announcing its results, Hindenburg Research raised allegations of “accounting manipulation.” Since then, Super Micro has:

• Postponed their annual report filing with the SEC.
• Had accounting firm Ernst & Young resign as its auditor, citing concerns over internal controls.
• Faced an early-stage accounting investigation by regulators, as reported by The Wall Street Journal.
• Been removed from the Nasdaq-100.
• Engaged Evercore for a potential capital raise.

While an independent committee does not anticipate financial restatements and expects continued Nasdaq listing, many uncertainties linger until Super Micro releases its annual report and secures auditor approval.

Image source: Getty Images.

Lam Research: Expected Growth of 49%

Another firm with potential for upward movement is Lam Research (NASDAQ: LRCX). Its board approved a 10-for-1 forward split in May, which took effect after markets closed on October 2.

The most optimistic outlook for Lam comes from Berenberg Bank analyst Tammy Qiu, who has set a price target of $1,140, adjusted to $114 per share after the recent split, suggesting a 49% upside from current levels.

Lam Research is well-positioned within the AI sector as a leading supplier of wafer fabrication equipment essential for semiconductor manufacturers.

Specifically, it produces equipment that packages high-bandwidth memory (HBM), crucial for enhancing data processing speeds required for AI initiatives. Lam’s role is vital in supporting the mainstream adoption of AI technologies.

Nonetheless, challenges persist. Although not mired in accounting issues like Super Micro, Lam faces significant external factors. During the recent quarters, the company earned a substantial portion of its revenue—39% in the June quarter and 37% in the September quarter—from China. Increasing scrutiny from U.S. regulators regarding exports to China raises concerns for Lam’s business outlook.