Companies that split their stock are typically experiencing phenomenal growth that has caused their stock price to skyrocket. It is not uncommon to see a fast-growing company issue multiple stock splits over several years. For example, a leading chip supplier Nvidia (NASDAQ: NVDA) has split its stock six times in the past 25 years, including two since 2021.
The most common type of split is a forward stock split, where the company’s goal is to make its stock price more affordable for investors. Note that a stock split gives you more shares, but the stock price is also reduced so that the value of your investment remains the same after the split.
Stock splits alone are not a good reason to invest in a company. It all depends on the company’s growth and its future opportunities. If the stock is trading at a reasonable price relative to that growth, you have a winner on your hands. Below are two growth stocks that recently issued a 10-for-1 split that you can buy today for less than $200.
1. Nvidia
Nvidia has been one of the best-performing stocks over the past 10 years. Shares are up 24,000% since 2014. The company has split its stock twice in the past five years: a 4-for-1 split in 2021 followed by a 10-for-1 split in June of this year, which brought its share price to a more affordable $118.
Shares have been volatile over the past month as investors focus on near-term headwinds to growth. Nvidia is set to launch its Blackwell GPU architecture later than Wall Street expected. Nvidia is also grappling with export restrictions and rising competition in China, though its China business grew sequentially last quarter.
Some of Nvidia’s largest customers in the US are making their own chips for artificial intelligence (AI) workloads, including Amazon Web Services (AWS). There is growing demand for alternatives as Nvidia graphics processing units (GPUs) have become scarce and carry high retail prices.
Despite these risks, Nvidia’s revenue grew 122% year over year in the fiscal second quarter. There’s currently nothing that can replace the general-purpose computing power of Nvidia’s GPUs. That’s why Amazon and other cloud service providers are expected to adopt Blackwell next year, which can run large language models (LLMs) significantly faster and at a lower cost than previous-generation chips.
Nvidia expects fiscal third-quarter revenue to increase approximately 79% from the same quarter last year. Management believes the enterprise AI wave is gaining momentum across multiple industries, and this should drive strong demand for Blackwell beginning in the fiscal fourth quarter.
Analysts currently expect Nvidia’s earnings to rise 40% to $3.99 next year. Assuming Nvidia shares trade at the same price-to-earnings (P/E) ratio, the stock could hit $200 by the end of 2025, representing a 69% increase.
2. Broadcom
Broadcom (NASDAQ:AVGO) is another chip stock that has delivered exceptional returns to investors in recent years. This leading provider of data center software and networking solutions issued a 10-for-1 split on July 15, bringing its share price down to $167.
Broadcom is well positioned for long-term growth in the AI market. It began investing in AI about 10 years ago, and it’s paying off. In the second quarter, revenue from custom AI accelerators more than tripled compared to the same quarter a year ago.
Another catalyst that should benefit the stock is Broadcom’s smartphone business. It has been a key supplier of components for AppleAs part of Apple’s commitment to invest $430 billion in the U.S. economy over the next five years, it signed a long-term deal with Broadcom in 2023 to supply wireless connectivity and other components for Apple devices.
Broadcom could see a modest boost from Apple’s iPhone 16 over the next year. Apple is expected to see strong demand for its new iPhones as customers with older phones will need to upgrade to take advantage of new AI features coming to iOS. Broadcom expects 20% sequential growth in wireless revenue in the fourth quarter.
Analysts have high confidence in Broadcom at the moment as some of the risks to the business have already materialised, such as the recent sluggishness in smartphone sales. Plus, it has a large exposure to the growth of AI infrastructure, which bodes well for its long-term prospects.
The stock is trading at a forward P/E of 27 based on next year’s earnings estimate, and analysts expect the company to post 19% annualized earnings growth over the long term. The stock should deliver excellent returns in the coming years.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. John Ballard has positions in Nvidia. The Motley Fool has positions in and recommends Amazon, Apple, and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
2 Stocks to Buy Before 2025 was originally published by The Motley Fool