Two fast-growing companies could become Wall Street’s next split stocks.
For more than a year, the two hottest trends on Wall Street have been the rise of artificial intelligence (AI) and investors’ new love of companies doing stock splits. Last week, these two trends collided when the AI titan Nvidia (NVDA 1.85%) completed a 10-for-1 stock split.
A stock split is a purely cosmetic event that changes a company’s stock price and the number of shares outstanding by the same magnitude. In the case of Nvidia, the company’s share count increased 10-fold while reducing its stock price to 1/10th of its previous price. Stock splits have no impact on a company’s market capitalization or its underlying operations.
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Stock splits also come in two versions: straight and reverse. A forward stock split, which Nvidia just completed, aims to make the shares more affordable for ordinary investors. A single Nvidia share now costs around $120, up from $1,200 the previous week.
Meanwhile, the purpose of a reverse stock split is to increase a company’s stock price. This is usually done to ensure that minimum listing standards on major exchanges are met.
Since the start of 2024, more than half a dozen high-flying companies with well-defined competitive advantages have undertaken forward stock splits. AI giant Nvidia happens to be the most high-profile of the bunch.
Nvidia’s graphics processing units (GPUs) have quickly become the standard in AI-accelerated data centers, fueling a more than 700% increase in the company’s stock price since the start of 2023. With demand for the company’s H100 GPUs far outstripping supply, Nvidia had no trouble raising the price of these units and growing its gross margin at a staggering 78.35% during the fiscal first quarter ( closed April 28). In other words, splitting its shares for the second time since July 2021 was a no-brainer decision for Nvidia’s board.
However, Nvidia is unlikely to be the only fast-paced stock to complete a split in 2024. Although there are a number of logical candidates to become the next split stock on Wall Street, including Costco wholesale, BroadcomAnd MetaplatformsThere are two fast-growing dark horse candidates that might be most likely to follow in Nvidia’s footsteps.
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CrowdStrike Titles
The first hypergrowth stock that could surprise Wall Street and become the next split stock is the endpoint cybersecurity leader. CrowdStrike Titles (CRWD 1.04%). CrowdStrike never conducted a stock split, but its shares soared to nearly $370 in after-hours trading on June 7 following the announcement that it was being added to the benchmark index. . S&P500.
Since its initial public offering (IPO) in 2019, CrowdStrike has returned more than 500% to its shareholders. This reflects the evolving variables in the cybersecurity field, as well as its unique innovation and superior platform.
The beauty of cybersecurity solutions is that they have gone from optional to necessary. Businesses with an online or cloud presence are increasingly relying on third-party cybersecurity companies to combat hackers and bots that don’t take time off and don’t care about the right or the poor performance of the American and global economies. Its total addressable market is expected to more than double from $100 billion in 2024 to $225 billion by 2028, according to CrowdStrike.
The secret sauce that has made CrowdStrike successful is its cloud-native, AI and machine learning-powered platform, known as Falcon. Every week, Falcon monitors billions of events and gets progressively smarter when it comes to identifying and responding to potential threats.
What’s particularly notable about CrowdStrike is its retention rate. CrowdStrike’s Software-as-a-Service (SaaS) solutions are far from the cheapest on the market. Yet its retention rate has consistently hovered around 98%. Businesses have demonstrated a willingness to pay more for a premium product, which is what CrowdStrike offers.
Additionally, CrowdStrike reaps the rewards of add-on sales. By the end of the company’s first fiscal quarter (April 30), 65% of its customers had purchased at least five cloud modules. Its SaaS model generated an adjusted subscription gross margin of 80% in fiscal 2024 (ended at the end of January), suggesting that CrowdStrike’s supercharged sales and profit growth rates are sustainable.
Visa
The other hypergrowth company that is a dark horse candidate to follow in Nvidia’s footsteps and become Wall Street’s next split stock is the payments processing colossus. Visa (V. -0.02%).
Since Visa’s IPO in March 2008, the company has completed a forward split (4-for-1 in March 2015). What’s interesting about this split is that it occurred when Visa was trading at around $268 per share. The stock ended last week near $279 and topped $290 per share three months ago. Based on what its board has done historically, a stock split would seem likely.
Additionally, Visa’s Employee Stock Purchase Plan (ESPP) allows its employees to purchase shares at a discount of up to 15%. As Walmart And Chipotle Mexican Grill announced early splits earlier this year to encourage employees to participate in their respective ESPPs, Visa may be incentivized to do the same.
Perhaps the best thing about Visa’s operating model is that time is on its side. Although recessions are a normal and inevitable part of the economic cycle, the phases of this cycle generally differ in duration. While the majority of economic downturns in the United States have resolved in less than a year since the end of World War II, the typical expansion lasts several years. This allows Visa to reap the rewards of consumers and businesses spending more during long-term growth phases.
Another reason why investors can confidently place their trust in Visa for the long term is management’s decision to avoid any lending activity. While I have no doubt that Visa would be an effective lender on branding alone, it would expose the company to credit defaults and loan losses during a recession. By focusing strictly on facilitating payments, the company avoids the need to set aside capital to cover possible loan losses. This decision explains why its profit margin remained above 50%!
Visa’s growth story is also about international expansion. In addition to being the undisputed leader in purchase volume on the U.S. credit card network, Visa sees a multi-decade opportunity to grow organically or acquisitively in chronically underbanked emerging market regions , including the Middle East, Africa and Southeast Asia. Visa’s growth runway truly spans the coming decades.
Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Sean Williams holds positions in Meta Platforms and Visa. The Motley Fool holds positions and recommends Chipotle Mexican Grill, Costco Wholesale, CrowdStrike, Meta Platforms, Nvidia, Visa and Walmart. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.