Stocks that split tend to beat the S&P 500 (^GSPC 0.43%), according to research from Bank of America. Since 1980, the average company has seen its share price increase 25.4% during the 12 months following a stock split announcement, while the S&P 500 has returned an average of 11.9% during the same period.
Nvidia is the most recent company to follow that pattern. Since announcing a 10-for-1 stock split on May 22, its share price has surged 43%, while the S&P 500 has returned just 3%. Nvidia's success is due to its market leadership in artificial intelligence (AI) chips and its expanding influence in other areas of the AI economy.
Super Micro Computer (SMCI +0.28%) and Microsoft (MSFT 2.17%) also play important roles in the AI economy, and they could be the next companies to announce stock splits. Here's what investors should know.
NASDAQ: SMCI
Key Data Points
1. Super Micro Computer
Super Micro Computer designs and manufactures high-performance computing platforms for enterprise and cloud data centers. Its products include individual servers and full-rack solutions purpose-built for AI applications. Supermicro has a deep relationship with Nvidia, but it also sources chips, memory, and other hardware from suppliers like Advanced Micro Devices, Broadcom, and Intel.
Dell Technologies leads the server market in sales, but Supermicro is an early frontrunner in the AI server subcategory due to its unique building-block approach to product development. Specifically, the company can quickly integrate the latest chips and hardware into preassembled server building blocks, and it handles most development in-house. The upshot is that Supermicro can usually bring new technologies to market more quickly than its rivals.
Supermicro also affords customers more flexibility in creating customized computing platforms. Its building blocks can be assembled in countless combinations, such that it has one of the broadest and deepest portfolios of advanced server and storage solutions in the IT industry. CEO Charles Liang says Supermicro offers the "best and broadest application-optimized GPU solutions on the market."
Collectively, those advantages -- the ability to launch new products quickly and satisfy a broad range of customer requests -- should keep Supermicro at the forefront of the AI server market. Indeed, Bank of America analysts estimate its market share at 17% by 2026, up from 10% in 2023. Even more bullish, KeyBank analysts expect Supermicro to account for 23% of AI server sales by 2025.
Going forward, Wall Street expects the company to grow earnings per share at 48% annually through fiscal 2026, which ends June 30, 2026. That estimate makes the current valuation of 51.6 times earnings look reasonable despite being a hefty premium to the three-year average of 21.9 times earnings. I would feel comfortable buying a small position in this AI stock today, whether or not the company splits its stock in the near future.
NASDAQ: MSFT
Key Data Points
2. Microsoft
Microsoft is the largest enterprise software company in the world. It accounted for 18% of software sales last year, and its market share could reach 20% by 2025, according to Morgan Stanley. Microsoft's flagship office productivity platform, Microsoft 365, is the foundation of that success. But the company is also the market leader in enterprise resource planning software with its Dynamics suite.
Microsoft is leaning on those advantages to monetize generative AI. It has added conversational assistants that complement its enterprise software. For instance, Copilot for Microsoft 365 automates tasks across Word, Excel, and other productivity applications. Similarly, Copilot for Dynamics 365 automates tasks across sales, service, and finance applications. Nearly 60% of Fortune 500 companies use a Copilot product.
Microsoft's IT prowess extends beyond enterprise software. Its Azure subsidiary accounted for 25% of cloud infrastructure and platform services spending in the first quarter, second only to Amazon Web Services (AWS). But Azure gained two points of market share over the past year, while AWS lost a percentage point of market share.
Morgan Stanley analyst Keith Weiss discussed those share gains in a recent note to clients. "The company's leadership in the shift to the public cloud is now being compounded by an early leadership positioning in generative AI." One reason for that momentum is the partnership with OpenAI, a start-up best known for ChatGPT. Azure OpenAI Service lets Microsoft customers build generative AI applications with OpenAI large language models.
Going forward, Wall Street expects Microsoft to grow earnings per share at 14.7% annually through fiscal 2027, which ends June 30, 2027. That consensus estimate makes its current valuation of 38.7 times earnings look expensive. Personally, I think Microsoft shares have gotten slightly ahead of themselves amid the AI-induced euphoria currently percolating the market. I would wait for a cheaper valuation before buying this potential stock-split stock.
