Although artificial intelligence (AI) has been the talk of Wall Street since 2023 began, the return of stock-split euphoria has given AI a run for its money in 2024.
A stock split is a mechanism publicly traded companies can lean on to cosmetically alter their share price and outstanding share count. Its superficial in the sense that adjusting share price and share count by the same magnitude has no impact on market cap or a company's underlying operating performance.
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Splits come in two forms, with one being substantially more popular than the other. Reverse-stock splits are geared toward increasing a company's share price. This is usually done to ensure it meets the continued minimum listing standards of a major stock exchange.
On the other hand, forward-stock splits reduce a company's share price. The purpose of a forward split is to make shares more nominally affordable for investors who lack access to fractional-share purchases through their broker. Since forward splits are almost always announced from a position of operating strength, this is the type of split investors gravitate to.
Since 2024 began, 13 time-tested businesses have announced or completed a stock split -- all but one of which is of the forward-split variety. While no splits have garnered more attention than AI darlings Nvidia (NVDA -2.09%) and Broadcom (AVGO -1.47%), there's another scorching-hot stock-split stock readying for its moment in the spotlight.
Nvidia and Broadcom have been Wall Street's most-anticipated stock splits of 2024
According to the analysts at PwC, artificial intelligence is forecast to add $15.7 trillion to the global economy by 2030 through various consumption-side benefits and productivity improvements. With an addressable market this large, it's not surprising to see Wall Street fall head over heels for AI stocks.
Nvidia has been the runaway face of the AI revolution. Since the start of 2023, Nvidia's market cap has increased by $2.8 trillion, which is the fastest ascent we've ever witnessed from a market-leading business. This was the catalyst that compelled Nvidia's board to approve a 10-for-1 forward split.
Nvidia's astronomical gains are a function of its H100 graphics processing units (GPUs) being the undisputed top choice in AI-accelerated data centers. The analysts at semiconductor firm TechInsights note that Nvidia's GPUs accounted for all but 90,000 of the 3.85 million GPUs shipped in 2023 to data centers.
With overwhelming demand comes the exceptional pricing power that's sent the company's adjusted gross margin considerably higher. Nvidia's H100 sports a price tag ranging from $30,000 to $40,000, which is well above what its competitors are charging for their AI-GPUs.
Don't overlook Nvidia's CUDA platform, either. This software kit that helps developers build large language models is working hand-in-hand with the company's hardware to keep customers within its ecosystem of products and services.
Meanwhile, Broadcom has been a key supplier of networking solutions. Last year, it introduced its Jericho3-AI fabric, which can connect up to 32,000 GPUs in high-compute data centers. The goal of Broadcom's solutions is to reduce tail latency and maximize the computing potential of GPUs in use.
Although Broadcom's stock has moved up in a big way because of its AI networking solutions -- this sizable move led to its first-ever stock split, 10-for-1, following the close of trading on July 12 -- there's a lot more to this company than just solutions tied to artificial intelligence.
For example, Broadcom is a leader in developing wireless chips and solutions for next-generation smartphones. Telecom companies upgrading their wireless networks to support 5G download speeds have increased demand for the chips and accessories used in next-gen wireless devices.
While Nvidia and Broadcom have had their moment in the sun, another perennial outperformer, which has nothing to do with AI and has gained more than 120,000%, including dividends paid, since its initial public offering (IPO), is ready to step forward and become Wall Street's newest stock-split stock.
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This 120,000%-gainer is two weeks away from becoming Wall Street's newest stock-split stock
Following the close of trading on September 11, corporate uniform and business services provider Cintas (CTAS -0.95%) will complete a 4-for-1 forward split and join the ranks of an elite group of outperforming stock-split stocks in 2024.
This marks the sixth time Cintas will have conducted a forward split since its IPO in August 1983:
- 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, floor mats, towels, and safety kits outperform Wall Street's benchmark indexes so decisively over a four-decade stretch? History and revenue diversity are the first important puzzle pieces.
Based on the company's own admission in June, it has "more than 1 million businesses of all types and sizes" that it services. With no single customer accounting for an outsized percentage of sales, Cintas doesn't have to worry about its proverbial ship sinking because of the struggles of one or more of its customers.
Additionally, Cintas has history on its side. Although recessions are a perfectly normal aspect of the economic cycle, they're almost always short-lived. Periods of economic growth stick around significantly longer, thusly allowing Cintas's customers to expand. In turn, this increases demand for corporate uniforms and business services over time.
Another key to the company's long-term success has been its willingness to grow via acquisition. Since this century began, it's scooped up Omni Services (2002), Zee Medical (2015), and G&K Services (2017), to name a few. These earnings-accretive deals expand the company's product portfolio and work to keep existing clients within its network of products and services.
Don't overlook innovation, either. Cintas has introduced new products to lure in new clients, and leaned on a variety of cross-selling solutions to encourage existing clients to spend more.
The cherry on top is the company's incredible capital-return program. It's raised its dividend every year since going public in 1983 and recently added to its share repurchase program, which stood at $1.5 billion, as of July 23, 2024. A company that can raise its payout for four decades without interruption is a business that's demonstrated it can navigate anything the U.S. economy throws its way.
The one downside with Cintas is its valuation. Though being an industry leader has its perks and comes with some degree of a valuation premium, a forward price-to-earnings ratio of nearly 43 for a company expected to grow its earnings per share by an annual average of 13% through 2028 is difficult to justify.
