Despite historically hot trends like artificial intelligence (AI) dominating headlines on Wall Street, it’s stock-split euphoria that is played an equally impressive role in sending the broader market higher in 2024.
Put simply, a stock split is a tool publicly traded corporations can lean on to regulate their share price and outstanding share count by the identical factor. The fantastic thing about stock splits is that they’re entirely cosmetic and don’t have any effect on an organization’s market cap or underlying operating performance.
There are two kinds of stock splits — forward and reverse — with the previous being far more popular than the latter among the many investing community.
Reverse splits are enacted to extend an organization’s share price, often with the goal of maintaining continued listing standards for a significant stock exchange. Since most reverse-stock splits are conducted from a position of operating weakness, investors are inclined to keep their distance from this number of split.
Meanwhile, forward-stock splits are designed to cut back an organization’s share price to make it more nominally inexpensive for retail investors who lack access to fractional-share purchases through their broker. Firms with high-flying stocks that require a forward split to make their shares more “nominally inexpensive” are often out-executing and out-innovating their competition.
Because the curtain opened on 2024, 13 phenomenal businesses have announced or accomplished stock splits — none of which have been more anticipated than that of AI juggernaut Nvidia (NASDAQ: NVDA). On condition that corporations conducting forward splits have, since 1980, greater than doubled the return of the benchmark S&P 500 within the 12 months following their split announcement, investors are desirous to guess which top-tier stock will likely be next to unveil a forward-stock split.
Nvidia had all of the hallmarks of a Wall Street stock-split stock
Prior to Nvidia announcing its largest-ever forward split (10-for-1) on May 22, there have been good enough clues to suggest that a stock split was imminent.
The apparent clue with Nvidia was that its stock had increased by 550% between the beginning of 2023 and the day it released its fiscal first-quarter operating results, where it revealed its historic split. Nobody on Wall Street has ever witnessed a market-leading company add around $2.8 trillion in market cap in what seems like the blink of an eye fixed.
To construct on this point, Nvidia’s jaw-dropping returns have made it particularly popular with on a regular basis investors. It’s develop into the fourth most-held security (including exchange-traded funds) on retail investor-dominated online trading platform Robinhood. Not requiring retail investors to avoid wasting $1,300 to buy a single share of Nvidia might help sustain the euphoria behind its near-parabolic climb.
Nvidia’s market-leading status amongst graphics processing unit (GPU) developers for AI-accelerated data centers also made it a logical candidate to conduct a stock split. Semiconductor evaluation firm TechInsights estimates that of the two.67 million data-center GPU shipments in 2022 and three.85 million GPU shipments in 2023, Nvidia accounted for all but 30,000 GPUs shipped in 2022 and 90,000 GPUs shipped in 2023. It’s grabbed a stranglehold of the GPU market share that is powering generative AI solutions and training large language models (LLMs) in enterprise data centers.
The corporate’s CUDA computing platform provides yet another excuse Nvidia splitting its stock made sense. CUDA is the toolkit that helps developers construct LLMs and speed up computing applications. The important thing point is that Nvidia’s software is working in tandem with its top-tier hardware to maintain businesses loyal to its myriads of services and products.
With Nvidia laying the blueprint for what to search for in future stock-split stocks, there’s one logical candidate that stands out.
Prediction: This 150,000% gainer will likely be the subsequent high-profile stock split announcement on Wall Street
When it comes to brand-name, time-tested, dominant corporations, I’d expect Wall Street’s next high-level stock split announcement to return from warehouse club Costco Wholesale (NASDAQ: COST).
Although no stock goes up every 12 months, Costco has come very near breaking the mold. Including dividends paid, Costco has delivered a positive total return to its shareholders in 20 of the last 23 years. More impressively, its shares have increased in value by 150,000%, including dividends, since its initial public offering (IPO) in December 1985.
It has been near 1 / 4 of a century since Costco last conducted a stock split, with its three prior splits occurring in January 2000 (2-for-1), March 1992 (3-for-2), and May 1991 (2-for-1). With shares of the corporate approaching $900, it’s fair to assume that some on a regular basis investors without access to fractional-share purchases are being forced to remain on the sidelines.
One in all Costco’s biggest and clearest competitive benefits is its size. The corporate’s deep pockets allow it to buy goods in bulk, which lowers the per-unit cost of every item. With price being such a very important concern for shoppers, buying in bulk has consistently helped Costco undercut traditional grocery chains and mom-and-pop shops on cost.
It is important to notice that Costco’s warehouses sell a combination of discretionary goods and consumer staples. No matter how well the U.S. economy is performing or what the prevailing rate of inflation is, consumers still have to purchase groceries and basic household necessities. In other words, Costco is drawing in consumers in all economic climates, which generally results in highly predictable sales and operating money flow.
One other identifiable edge Costco brings to the table is its membership-driven operating model. Annual membership fees generate high margins and might be used to offset the low prices and razor-thin margins for groceries that help the corporate court latest members. Plus, paying an annual fee to buy at Costco is liable to encourage consumers to get as much out of their membership as possible. Briefly, they are going to select Costco over other shopping destinations when making large purchases.
The ultimate piece of the puzzle for Costco is its exceptional pricing power. Starting on Sept. 1, the annual fees for its Gold Star and Business memberships will increase $5 to $65, while Executive memberships will jump $10 to $130 per 12 months. The primary increase in membership fees since 2017 is not going to scare away this warehouse club’s fiercely loyal customers.
So when Costco lifts the hood on its fiscal fourth-quarter operating results on Sept. 26, do not be surprised if it also unveils its first stock split since January 2000.
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Sean Williams has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Costco Wholesale and Nvidia. The Motley Idiot has a disclosure policy.
Prediction: Wall Street’s Next Stock Split Announcement Will Come From a Company That is Gained 150,000% Since Its IPO was originally published by The Motley Idiot