One among the largest financial news stories in recent weeks is the huge 10-for-one stock split by NVIDIA (NASDAQ:NVDA), which took effect this week. Now a second major artificial-intelligence stock has followed suit.
On Monday, NVIDIA shareholders received nine additional shares for each one they owned as of last Friday. NVIDIA’s stock price also dropped from about $1,200 per share last Friday to $120 per share on Monday morning.
Then on Wednesday, fellow chipmaker Broadcom (NASDAQ:AVGO) announced that it’s also initiating a 10-for-one stock split. In response, shares of Broadcom surged on Thursday morning, rising some 14% to over $1,700 per share as of 10 a.m. Eastern.
Read on to learn more in regards to the Broadcom stock split.
The Magnificent Eighth
If there have been a Magnificent Eight stock, Broadcom is perhaps make the cut. It has been on a tear the past few years, returning 104% in 2023 and 57% 12 months to this point, including Thursday’s huge gains.
Over the past 10 years Broadcom stock has posted a mean annualized return of 35%.
Like NVIDIA, it’s a semiconductor company, and likewise like NVIDIA, its recent success has been fueled by AI. Generally speaking though, there may be a key difference between the 2 corporations.
Broadcom makes chips that facilitate the movement of huge amounts of knowledge across networks like mobile and broadband networks. However, NVIDIA makes graphics processing units (GPUs) that enable high-performance computing.
On Wednesday after the market closed, Broadcom released its fiscal second-quarter earnings results for the three-month period that ended on May 5. Those results exhibit a continuation of the success Broadcom has enjoyed.
In actual fact, the corporate did even higher than analysts had expected within the quarter as its revenue climbed 43% 12 months over 12 months to $12.5 billion. Net income was down nearly 40% from the identical period a 12 months ago, but that included acquisition costs related to the acquisition of VMware.
Adjusted net income jumped 20% to $5.4 billion, or $10.96 per share, also topping estimates. Once more, AI was the catalyst, as Broadcom posted record AI revenue.
“Broadcom’s second-quarter results were once more driven by AI demand and VMware,” said Hock Tan, president and CEO of Broadcom. “Revenue from our AI products was a record $3.1 billion through the quarter. Infrastructure software revenue accelerated as more enterprises adopted the VMware software stack to construct their very own private clouds.”
Raising guidance
If those quarterly results weren’t ok, Broadcom also raised its guidance for fiscal 2024. The corporate now anticipates $51 billion in revenue for the fiscal 12 months, up from the previous guidance of $50 billion. In actual fact, $51 billion could be 43% higher than the fiscal-2023 total.
Broadcom can be anticipating adjusted EBITDA to be 61% of revenue, up from the previous guidance of 60% of projected revenue.
The chipmaker received several price-target increases from analysts after those earnings results, which also helped fuel its big jump on Thursday. Broadcom also declared a dividend of $5.25 per share for the quarter, representing a yield of 1.4%.
The ten-for-one stock split
The opposite major catalyst for Broadcom was the announcement of the 10-for-one stock split. This had been anticipated by many given its high $1,700-per-share price, although the timing was unclear until now.
Broadcom will award shareholders as of July 11 one other nine shares for each share they own. It’ll also decrease the share price by an element of 10 from where it would be when the market closes on July 11.
Thus, shares of Broadcom will probably be trading 10 times lower as of July 15, so whether it is trading at $1,700 at market close on July 11, the shares will probably be price $170 as of July 15.
Based on Chief Financial Officer Kirsten Spears, the stock split is being done to “make ownership of Broadcom stock more accessible to investors and employees.”
Stock splits often have the impact of juicing an organization’s stock price, a minimum of initially, as more investors pile in on the lower cost. Nevertheless, while the stock price is lower, the valuation of the stock as measured by its price-to-earnings ratio and other valuation metrics stays the identical.
NVIDIA began trading at its stock-split price of $120 per share on Monday, and it’s up 7.5% this week to $129 per share.
Broadcom is the most effective AI stocks you’ll be able to buy, and while its P/E ratio has spiked to 64, its forward P/E based on future earnings is affordable at 31. Nevertheless, investors should remember that the stock price jumped some 15% today on the news, so pick your spot to get in.