In a financial landscape peppered with unpredictable market fluctuations, the resurgence of stock splits has garnered heightened attention from investors. While once a common practice in the late 1990s, the allure of stock splits dwindled, only to be revitalized in recent years. This strategic corporate move typically follows a string of robust operational and financial achievements, propelling an upward trajectory in stock prices.

History has repeatedly demonstrated that high-performing companies maintain their momentum. Companies opting for forward stock splits typically witness a surge in share prices, averaging 25% in the year subsequent to the announcement, a stark contrast to the average gains of 12% for the S&P 500 as per data curated by Bank of America analyst Jared Woodard.

Pioneering the list of promising stock-split stocks, Broadcom (NASDAQ: AVGO) stands out with a substantial room for growth. Nestled in the tech realm, the company boasts a commanding position, catering to a vast spectrum of software, semiconductor, and security solutions spanning cable, broadband, mobile, and data center domains. Broadcom proudly boasts that “99% of all internet traffic passes through some form of Broadcom technology,” marking a pivotal role in the ongoing artificial intelligence (AI) revolution.

The most recent financial results underscore a thriving business landscape. In the second quarter, revenues hit $12.5 billion, climbing 43% year over year, elevating adjusted earnings per share (EPS) to $10.96, a 6% surge. Despite the profit margin being temporarily affected by the recent VMWare acquisition, which is anticipated to stabilize by 2025, Broadcom remains optimistic about its future growth. The company revised its full-year revenue forecast to $51 billion, indicative of a 42% growth trajectory.

Embracing its history of operational finesse and robust growth, Broadcom executed a noteworthy 10-for-1 stock split in mid-July. Even after a remarkable 152% surge since the beginning of last year, numerous Wall Street analysts remain staunchly bullish. Just before the split in the previous month, Rosenblatt analyst Hans Mosesmann reiterated a buy rating and upped the price target to a split-adjusted $240, translating to a potential 76% upside for investors compared to the closing price on a Wednesday.

Following suite is Nvidia (NASDAQ: NVDA), heralded as the premier supplier of graphics processing units (GPUs) indispensable in video games, cloud computing, and data center operations. This strategic positioning has propelled Nvidia to dominate the market for chips essential for generative AI, amplifying its sales as these GPUs deliver the computational power imperative for AI operations.

For the fiscal 2025 first quarter concluded in April, Nvidia notched up records, with revenues surging to $26 billion, reflecting a staggering 262% year-over-year increase, alongside diluted EPS reaching $5.98, marking a whopping 629% surge. The notable performance was chiefly propelled by the data center segment—including AI processors—where revenues skyrocketed by 427% to hit $22.6 billion.

Nvidia’s meteoric rise, culminating in a 600% surge since the initiation of 2023, prompted a well-publicized 10-for-1 stock split in June. Nonetheless, market analysts harbor expectations of a flourishing future for Nvidia. Mosesmann, in particular, maintains a bullish sentiment with a buy rating and an ambitious street-high price target of $200, mirroring a potential 99% upside from the Wednesday closing price.

Capping off our trifecta of stock-split stocks with ample growth potential is Super Micro Computer (NASDAQ: SMCI), also known as Supermicro. With a legacy spanning over three decades, the company specializes in custom servers tailored for the tech sector. Supermicro’s innovative rack-scale servers with direct liquid cooling technology align seamlessly with the demands of AI processing, accentuated by a pronounced emphasis on energy efficiency.

Establishing robust partnerships with major chipmakers positions Supermicro favorably in securing the most sought-after processors, including those from Nvidia, Advanced Micro Devices, and Intel.

In the fiscal 2024 fourth quarter that ended on June 30, Supermicro marked a milestone with record revenues shooting up to $5.3 billion, a remarkable 143% surge year over year and a notable 38% rise quarter over quarter.

Supermicro recently announced impressive financial results from the last quarter, reporting a 78% increase in adjusted earnings per share (EPS) to $6.25. While concerns arose regarding the company’s declining profit margin, CEO Charles Liang attributed the setback to a bottleneck in server components, which delayed some deals to the following quarter, resulting in a change in product mix towards lower-margin sales. Liang, however, remains optimistic and anticipates a strong rebound in the upcoming quarters.

The stellar performance of Supermicro since early last year has pushed its stock prices up by a whopping 516%. Illustratively, this escalation prompted the company to declare a 10-for-1 stock split, suggesting a positive outlook ahead. Analyst Ananda Baruah from Loop Capital maintains a bullish perspective on Supermicro’s shares, providing a buy rating and setting a price target of $1,500, signifying a prospective upside of 204% based on the closing price from Wednesday.

Baruah’s estimations of Supermicro’s sales potential paint an even brighter future, suggesting a staggering revenue run rate of $40 billion during fiscal 2026, a significant surge from just under $15 billion recorded at the end of fiscal 2024. Management echoes these sentiments, projecting net sales of approximately $28 billion at the mid-point of its guidance for fiscal 2025.

With a consensus from the Wall Street community, 17 analysts shared their opinions in July, with 12 providing buy or strong buy recommendations, indicating a unanimous positive sentiment towards Supermicro’s future growth trajectory.

Valuation Insights

Despite their substantial growth potential, companies like Nvidia, Broadcom, and Supermicro are currently trading at 36 times, 29 times, and 14 times forward earnings, respectively. This stands in contrast to a price-to-earnings (P/E) ratio of 27 for the S&P 500. While two of the three companies command a slight premium compared to the broader market, their proven track record of business success, exemplary stock price increases, and promising future prospects validate their valuation.

Investing in Broadcom

Prior to investing in Broadcom, it is essential to consider additional factors:

According to the Motley Fool Stock Advisor analyst team, Broadcom did not make it to their list of the 10 best stocks for investors to buy currently. The 10 stocks highlighted are predicted to deliver substantial returns in the near future.

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