Stock-split stocks have been undeniably hot in recent years. While these moves to spread a company's valuation out over a larger number of shares don't do anything to change the material nature of the business or its real value, lower per-share prices can make stocks more appealing -- and in some cases, more accessible -- to retail investors.
With artificial intelligence (AI) powering explosive gains for top players in the space, it's possible that some big names are on the verge of implementing new stock splits. In that vein, two Motley Fool contributors think Nvidia (NVDA -2.59%) and Microsoft (MSFT -0.53%) could carry out stock splits in the not-too-distant future -- and also deliver stellar performances over the long term.
Nvidia is winning in AI and could be the next big stock splitter
Keith Noonan: Thanks to its incredible business performance and excitement about the company's long-term AI opportunities, Nvidia has been one of this year's biggest winners. The company's share price has risen by 186% so far in 2023.
On the heels of those explosive gains, the AI leader's market capitalization has been pushed up to $1.03 trillion, making it the world's sixth-largest public company. Trading at roughly $418 per share, the semiconductor specialist looks like a prime candidate for a stock split.
Even with the ability to purchase fractional shares, stocks are trading at or above that range can become less attractive to retail investors. In turn, companies may opt to carry out stock splits. For example, Apple stock was trading at roughly $380 per share when it announced its last stock split in 2020. With its four-for-one stock split, the company's stock became more accessible and more appealing for the average trader.
Notably, megacap tech companies have leaned heavily into the stock-split trend in recent years. In addition to Apple, Alphabet, Amazon, and Tesla have all carried out splits since the beginning of 2020. While there's a fair chance that Nvidia will follow suit, that's not the reason that long-term investors should consider building a position in the graphics processing unit (GPU) leader.
Nvidia's GPUs have emerged as foundational hardware for running advanced artificial intelligence and accelerated computing processes. The company already has a roughly 90% market share when it comes to GPUs for data centers, and it seems poised to retain or expand its edge as demand for AI technologies continues to ramp up.
Crucially, Nvidia is already serving up great results. It expects to post revenue of $16 billion in the third quarter, up 170% from the prior-year period. Meanwhile, it's guiding for a gross margin of 71.5%. Margin performance tends to be cyclical in the semiconductor industry, and Nvidia is seeing great performance thanks to surging demand for its latest AI processors, but the company's leadership position in a crucial category should preserve its ability to continue to serve up strong results.
Even if it doesn't follow the stock-splitting trend set by its megacap peers, Nvidia looks like it has what it takes to be a long-term winner.
Microsoft could consider splitting its stock
Parkev Tatevosian: Trading at roughly $341 per share as of this writing, Microsoft stock could be heading for a stock split. If it undertakes one, its lower post-split price could make the stock even more attractive to retail investors. Microsoft is at the forefront of the development of AI technology. With its significant investment in (and partnership with) ChatGPT creator OpenAI, Microsoft is poised to benefit from the rising effectiveness and adoption of AI.
Already, Microsoft has done an excellent job growing its business at a compound annual rate of 11% over the last decade, adding an impressive $125 billion to its top line. As Microsoft infuses AI into its many products, including Windows, Bing, Word, and Excel, it would not surprise me to see revenue rise further.
MSFT PE Ratio (Forward 1y) data by YCharts
Additionally, Microsoft's revenue growth has not come at the expense of profitability. Indeed, its operating income has grown from $28 billion to $89 billion in the past 10 years. Given that AI will make its products more desirable to consumers, the company's profits could rise further.
Are Microsoft's profits likely to rise by another $61 billion in the next decade? Probably not, but investors don't need that kind of success to make money from its stock. Fortunately, trading at a forward price-to-earnings ratio of 26, Microsoft is valued attractively enough that it could deliver fantastic investment returns for today's investors.
Nvidia and Microsoft look like long-term winners
Nvidia and Microsoft each have powerful competitive advantages and promising demand tailwinds at their backs. Whether or not either company winds up splitting their stocks in the near future, both companies have what it takes to deliver wins for long-term investors.
