Some companies create so much long-term value that their stock price soars into the thousands of dollars. That makes it hard for smaller investors to buy one full share, so those companies often execute a stock split, which increases the number of shares in circulation, and organically reduces the price per share by a proportional amount.
Artificial intelligence (AI) is creating a mind-boggling amount of value for a handful of companies this year. Nvidia (NASDAQ: NVDA) stock is up 171% in 2024 already, and Broadcom (NASDAQ: AVGO) stock is sitting on a 59% gain. In both cases, those returns have added to years of outstanding performance, which have led both companies to announce stock splits in the past month:
Nvidia stock was recently trading above $1,200, so it executed a 10-for-1 stock split, which went into effect on June 10. Investors can now buy one share for just $130.
Broadcom stock currently trades above $1,700, and it just announced a 10-for-1 stock split that will go into effect on July 15. At that time, investors will be able to buy a single share for around $170 (based on its current price).
So, can Nvidia and Broadcom carry their incredible momentum into the second half of this year?
1. Nvidia
Some Wall Street analysts refer to Nvidia CEO Jensen Huang as the “Godfather of AI.” No one knew it back then, but he sparked a revolution when he hand-delivered the first AI supercomputer to ChatGPT creator OpenAI in 2016. Today, some of the world’s largest tech companies are clamoring to get their hands on Nvidia’s latest graphics processing chips (GPUs) for the data center, which are the most powerful in the industry when it comes to developing AI.
The H100 GPU is leading the way so far. During the recent fiscal 2025 first quarter (ended April 28), it helped propel Nvidia’s data center revenue 427% higher compared to the year-ago period, to a record $22.6 billion. Triple-digit-percentage sales growth has been a persistent theme over the past year.
Now, Nvidia is gearing up to ship a new series of GPUs built on its Blackwell architecture. The GB200, for example, will be capable of inferencing AI models (the process of feeding them live data to make predictions) a whopping 5 times faster than the H100, which will reduce costs for developers who typically pay for computing capacity by the minute. Demand, therefore, is expected to be astronomical.
Nvidia has added more than $2.8 trillion of its current $3.2 trillion in market capitalization over the past 18 months alone, which is a seismic move unlike anything investors have seen in history. There are valid concerns that Nvidia stock has gone too far. Based on its trailing-12-month earnings per share of $1.80 and its current stock price of $130.78, it trades at a price-to-earnings (P/E) ratio of 72.6.
That’s almost twice as expensive as the iShares Semiconductor ETF, which holds Nvidia as well as a collection of its peers and trades at a P/E ratio of 37.8.
Nvidia does look more reasonable based on its future earnings, which Wall Street estimates will come in at $2.52 per share in the current fiscal year 2025, and $3.36 in fiscal 2026. That 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 to its stock price (using the iShares ETF P/E ratio as a benchmark).
So, could Nvidia log another 171% gain in the second half of 2024, like it did in the first half? Considering that would take its market cap 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’ worth 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 booming data center networking business. It sells a number of products and services like its Ethernet connectivity solutions, which regulate how quickly data travels between servers and devices. The Tomahawk 5 Ethernet switch is designed to process the high workloads associated with AI, and Broadcom said sales doubled during the recent fiscal 2024 second quarter (ended May 5) compared to the year-ago period.
Seven of the eight largest AI GPU clusters in the world are now using Broadcom’s Ethernet solutions.
On the software side, Broadcom bought cloud developer VMware for $69 billion in 2023, which helps businesses create virtual machines to utilize the maximum capacity from their servers. This is key in AI workloads where infrastructure is expensive and also in short supply at the moment. Then there is cybersecurity provider Symantec, which Broadcom bought for $10.7 billion in 2019. It’s weaving AI into its products to provide better protection to its customers.
Broadcom generated $12.5 billion in total revenue during Q2, up 43% year over year mainly thanks to the inclusion of VMware’s financials for the first time. The company’s AI revenue, however, surged 280% to $3.1 billion. Broadcom now expects to generate $51 billion in total revenue during fiscal 2024, $11 billion of which will come from AI alone.
Based on Broadcom’s $43.55 in non-GAAP (adjusted) earnings per share (which will become $4.35 after the 10-for-1 stock split), its stock trades at a P/E ratio of 39.2. Based on Wall Street’s earnings estimate of $59.90 for fiscal 2025, Broadcom stock trades 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 deliver more upside in the second half of 2024, another 59% gain might be out of the question unless the company delivers spectacular financial results in the next two quarters.
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, and iShares Trust-iShares Semiconductor ETF. 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 Stock-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
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