Wall Street’s Next Stock-Split — a 120,000% IPO Gain — Is Ready to Take the Spotlight

Although artificial intelligence (AI) has been discussed on Wall Street since early 2023, the return of stock split euphoria has given AI a run for its money in 2024.

A stock split is a mechanism that publicly traded companies can rely on to aesthetically alter their stock price and number of shares outstanding. It is shallow in the sense that adjusting share price and share count of the same magnitude has no impact on a company’s market capitalization or underlying operating performance.

Divisions come in two forms, with one being substantial more popular than the other. The reverse stock split is geared toward increasing a company’s stock price. This is usually done to ensure that it meets the minimum listing standards of a major stock exchange.

On the other hand, forward-stock splits lower a company’s stock price. The purpose of a forward split is to make shares more nominally accessible to investors who do not have access to fractional share purchases through their broker. Since forward splits are almost always announced from a position of operational strength, this is the type of split investors they gravitate towards.

Since the start of 2024, 13 time-tested companies have announced or completed a stock split — all but one forward-split. Although no division has attracted more attention than the AI ​​darlings Nvidia (NASDAQ: NVDA) and Broadcom (NASDAQ: AVGO)there’s another hot split stock getting ready for its moment in the spotlight.

Nvidia and Broadcom were Wall Street’s most anticipated stock splits of 2024

According to analysts at PwC, AI is expected to add $15.7 trillion to the global economy by 2030 through various consumer benefits and productivity improvements. With such a large addressable market, it’s no surprise to see Wall Street falling head over heels for AI stocks.

Nvidia was the runaway girl of the AI ​​revolution. Since the start of 2023, Nvidia’s market cap has grown by $2.8 trillion, which is the fastest rise we’ve ever seen from a market-leading business. That was the catalyst that led Nvidia’s board to approve a pre-10-for-1 split.

Nvidia’s astronomical gains are a function of its H100 graphics processing units (GPUs), making it the undisputed top choice in AI-accelerated data centers. Analysts at semiconductor firm TechInsights note that Nvidia GPUs accounted for all but 90,000 of the 3.85 million GPUs shipped in 2023 to data centers.

With overwhelming demand comes exceptional pricing power that sent the company’s adjusted gross margin considerable superior. Nvidia’s H100 is priced between $30,000 and $40,000, which is well above what its competitors charge for their AI GPUs.

The story continues

Don’t overlook Nvidia’s CUDA platform either. This software kit that helps developers build large language models works hand-in-hand with the company’s hardware to keep customers in its ecosystem of products and services.

Meanwhile, Broadcom has been a key provider of network solutions. Last year, it introduced its Jericho3-AI fabric, which can connect up to 32,000 GPUs in high-computing data centers. Broadcom’s solutions aim to reduce end-to-end latency and maximize the computing potential of the GPUs used.

While Broadcom’s stock has soared on its AI networking solutions — the sizable move led to the stock’s first 10-for-1 stock split after the close on July 12 — there’s a lot more to the company than just its AI solutions. artificial intelligence.

For example, Broadcom is a leader in the development of chips and wireless solutions for high-end smartphones. Telecom companies upgrading their wireless networks to support 5G download speeds have increased demand for chips and accessories used in next-generation wireless devices.

While Nvidia and Broadcom have had their moment in the sun, another perennial performer that has nothing to do with AI and has gained over 120,000%, including dividends paid, since its initial public offering (IPO) is ready to step up and become Wall Street’s newest split stock.

This 120,000% gain is two weeks away from becoming Wall Street’s newest stock split

After the close of trading on September 11, corporate uniform and business service provider Filmed (NASDAQ: CTAS) will complete a 4-for-1 forward split and join the ranks of an elite group of stocks split into higher-performing stocks in 2024.

This is the sixth time Cintas will conduct a forward split since its August 1983 IPO:

• April 1987: 2-for-1

• April 1991: 3-for-2

• April 1992: 2-for-1

• November 1997: 2-for-1

• March 2000: 3-for-2

• September 2024: 4-for-1

How does a company that supplies corporate uniforms, mats, towels and safety kits so decisively outperform Wall Street’s benchmarks over a four-decade period? History and income diversity are the first important pieces of the puzzle.

Based on the company’s own admission in June, it has “more than 1 million businesses of all types and sizes” that it serves. With no single customer accounting for a huge percentage of sales, Cintas doesn’t have to worry about its proverbial shipwreck due to the struggles of one or more customers.

Plus, Cintas has history on its side. Although recessions are a perfectly normal aspect of the economic cycle, they are almost always short-lived. Periods of economic growth remain significantly longer, allowing Cintas customers to expand. In turn, this increases the demand for corporate uniforms and business services over time.

Another key to the company’s long-term success has been its willingness to grow by acquisition. Since the turn of this century, it has amassed Omni Services (2002), Zee Medical (2015) and G&K Services (2017), to name a few. These earnings-enhancing transactions expand the company’s product portfolio and work to retain existing customers in its network of products and services.

Don’t overlook innovation either. Cintas introduced new products to attract new customers and relied on a variety of cross-selling solutions to encourage existing customers to spend more.

The cherry on top is the company’s incredible return on capital program. It has increased its dividend every year since going public in 1983 and recently added to its $1.5 billion share buyback program on July 23, 2024. A company that can raise its payments for four decades without interruption is a proven business. can navigate whatever the US economy throws its way.

The only downside with Cintas is its rating. While being an industry leader has its perks and comes with some degree of valuation premium, a forward price-to-earnings ratio of nearly 43 for a company projected to grow its earnings per share by an average of 13% annually through in 2028 is difficult. to justify.

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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Broadcom and Cintas. The Motley Fool has a disclosure policy.

Move Over, Nvidia and Broadcom: Wall Street’s Next Stock-Split — a 120,000% IPO Gain — Is Poised to Take Center Stage was originally published by The Motley Fool