Some companies create so much long-term value that their stock prices reach thousands of dollars. This makes it difficult for small investors to purchase an entire share, so these companies often do a stock split, which increases the number of shares outstanding and organically reduces the price per share by a proportionate amount. .
Artificial intelligence (AI) is creating staggering value for a handful of companies this year. Nvidia (NASDAQ:NVDA) the stock is already up 171% in 2024, and Broadcom (NASDAQ:AVGO) the stock is based on a gain of 59%. In both cases, these returns came on top of years of stellar performance, which led both companies to announce stock splits in the past month:
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Nvidia stock was recently trading above $1,200, so it did a 10-for-1 stock split, which took effect on June 10. Investors can now buy a stock for just $130.
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Broadcom stock is currently trading above $1,700 and just announced a 10-for-1 stock split that will take effect on July 15th. At that point, investors will be able to purchase a single share for around $170 (based on its current price). ).
So, will Nvidia and Broadcom be able to continue their incredible momentum in the second half of this year?
1.Nvidia
Some Wall Street analysts are calling Nvidia CEO Jensen Huang the “godfather of AI.” Nobody knew it at the time, but he sparked a revolution when he hand-delivered the first AI supercomputer to ChatGPT creator OpenAI in 2016. Today, some of the biggest tech companies in the world The world is clamoring to get their hands on Nvidia’s latest graphics processing (GPU) chips for the data center, which are the most powerful in the industry when it comes to AI development.
The H100 GPU leads the way so far. During the first quarter of fiscal 2025 (ended April 28), this helped propel Nvidia’s data center revenue up 427% from the same period last year, to a record amount of $22.6 billion. Triple-digit sales growth has been a persistent theme over the past year.
Nvidia is now preparing to deliver a new series of GPUs built on its Blackwell architecture. The GB200, for example, will be able to infer AI models (the process of feeding them live data to make predictions) 5x faster than the H100, reducing costs for developers who pay generally the calculation capacity per minute. The demand should therefore be astronomical.
Nvidia has added more than $2.8 trillion to its current market cap of $3.2 trillion in the last 18 months alone, which is a seismic shift unlike anything investors have seen in history . There are legitimate concerns that Nvidia’s actions have gone too far. Based on its trailing 12-month earnings per share of $1.80 and its current share price of $130.78, it is trading at a price-to-earnings (P/E) ratio of 72.6.
It is almost twice as expensive as iShares Semiconductor ETFwhich owns Nvidia as well as a bunch of its peers and trades at a P/E ratio of 37.8.
Nvidia looks more reasonable based on its future earnings, which Wall Street estimates will be $2.52 per share for the current fiscal year 2025 and $3.36 for fiscal year 2026. This places the stock at forward P/E ratios of 51.9 and 38.9, respectively. In other words, investors who buy Nvidia today will have to wait two years before the company’s earnings growth catches up with its stock price (using the iShares ETF P/E ratio as a benchmark).
So, could Nvidia see an additional 171% gain in the second half of 2024, like in the first half? Considering this would bring its market capitalization to a stratospheric $8.6 trillion, making it more valuable than Microsoft And Apple combined – I certainly wouldn’t bet on it.
2. Broadcom
Broadcom has decades of experience in the semiconductor and electronics industries. Apple is one of its best customers, using Broadcom’s 5G and wireless connectivity components in devices like the iPhone. But Broadcom has also become a very versatile AI company, thanks in part to some high-profile acquisitions in recent years.
On the hardware side, Broadcom has a growing data center networking business. It sells a number of products and services like its Ethernet connectivity solutions, which regulate how quickly data flows between servers and devices. The Tomahawk 5 Ethernet switch is designed to handle high workloads associated with AI, and Broadcom said its sales double during the second quarter of fiscal 2024 (ended May 5) compared to the year-ago period.
Seven of the world’s eight largest AI GPU clusters now use Broadcom Ethernet solutions.
On the software side, Broadcom bought cloud developer VMware for $69 billion in 2023, which helps companies create virtual machines to use the maximum capacity of their servers. This is essential in AI workloads where infrastructure is expensive and also scarce at present. Then there is cybersecurity provider Symantec, which Broadcom bought for $10.7 billion in 2019. It integrates AI into its products to provide better protection for its customers.
Broadcom generated total revenue of $12.5 billion in the second quarter, up 43% year-over-year, primarily due to the inclusion of VMware financials for the first time. AI revenue, however, jumped 280% to $3.1 billion. Broadcom now expects to generate $51 billion in total revenue in fiscal 2024, $11 billion of which will come from AI alone.
Based on Broadcom’s non-GAAP (adjusted) earnings per share of $43.55 (which will become $4.35 after the 10-for-1 stock split), its shares trade at a P/E ratio of 39 ,2. Based on Wall Street’s earnings estimate of $59.90 for fiscal 2025, Broadcom stock is trading at a forward P/E ratio of just 28.5.
Therefore, Broadcom is significantly cheaper than Nvidia on both counts. However, while its stock could generate more upside in the second half of 2024, an additional 59% gain may be out of the question unless the company delivers spectacular financial results over the next two quarters.
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Apple, Microsoft, Nvidia and iShares Trust-iShares Semiconductor ETFs. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
2 Split stocks soared 59% and 171% in the first half of 2024. Could the second half be even better? was originally published by The Motley Fool