One of the biggest financial news stories in recent weeks is the massive 10-for-one stock split by NVIDIA (NASDAQ:NVDA), which took effect this week. Now a second major artificial-intelligence stock has followed suit.
On Monday, NVIDIA shareholders received nine additional shares for every one they owned as of last Friday. NVIDIA’s stock price also dropped from about $1,200 per share last Friday to $120 per share on Monday morning.
Then on Wednesday, fellow chipmaker Broadcom (NASDAQ:AVGO) announced that it is also initiating a 10-for-one stock split. In response, shares of Broadcom surged on Thursday morning, rising some 14% to over $1,700 per share as of 10 a.m. Eastern.
Read on to learn more about the Broadcom stock split.
The Magnificent Eighth
If there were a Magnificent Eight stock, Broadcom might be make the cut. It has been on a tear the past few years, returning 104% in 2023 and 57% year to date, including Thursday’s huge gains.
Over the past 10 years Broadcom stock has posted an average annualized return of 35%.
Like NVIDIA, it is a semiconductor company, and also like NVIDIA, its recent success has been fueled by AI. Generally speaking though, there is a key difference between the two companies.
Broadcom makes chips that facilitate the movement of large amounts of data across networks like mobile and broadband networks. On the other hand, NVIDIA makes graphics processing units (GPUs) that enable high-performance computing.
On Wednesday after the market closed, Broadcom released its fiscal second-quarter earnings results for the three-month period that ended on May 5. Those results demonstrate a continuation of the success Broadcom has enjoyed.
In fact, the company did even better than analysts had expected in the quarter as its revenue climbed 43% year over year to $12.5 billion. Net income was down nearly 40% from the same period a year ago, but that included acquisition costs related to the purchase of VMware.
Adjusted net income jumped 20% to $5.4 billion, or $10.96 per share, also topping estimates. Once again, AI was the catalyst, as Broadcom posted record AI revenue.
“Broadcom’s second-quarter results were once again driven by AI demand and VMware,” said Hock Tan, president and CEO of Broadcom. “Revenue from our AI products was a record $3.1 billion during the quarter. Infrastructure software revenue accelerated as more enterprises adopted the VMware software stack to build their own private clouds.”
Raising guidance
If those quarterly results weren’t good enough, Broadcom also raised its guidance for fiscal 2024. The company now anticipates $51 billion in revenue for the fiscal year, up from the previous guidance of $50 billion. In fact, $51 billion would be 43% higher than the fiscal-2023 total.
Broadcom is also anticipating adjusted EBITDA to be 61% of revenue, up from the previous guidance of 60% of projected revenue.
The chipmaker received several price-target increases from analysts after those earnings results, which also helped fuel its big jump on Thursday. Broadcom also declared a dividend of $5.25 per share for the quarter, representing a yield of 1.4%.
The 10-for-one stock split
The other major catalyst for Broadcom was the announcement of the 10-for-one stock split. This had been anticipated by many given its high $1,700-per-share price, although the timing was unclear until now.
Broadcom will award shareholders as of July 11 another nine shares for every share they own. It will also decrease the share price by a factor of 10 from where it will be when the market closes on July 11.
Thus, shares of Broadcom will be trading 10 times lower as of July 15, so if it is trading at $1,700 at market close on July 11, the shares will be worth $170 as of July 15.
According to Chief Financial Officer Kirsten Spears, the stock split is being done to “make ownership of Broadcom stock more accessible to investors and employees.”
Stock splits often have the impact of juicing a company’s stock price, at least initially, as more investors pile in at the lower price. However, while the stock price is lower, the valuation of the stock as measured by its price-to-earnings ratio and other valuation metrics remains the same.
NVIDIA started trading at its stock-split price of $120 per share on Monday, and it is up 7.5% this week to $129 per share.
Broadcom is one of the best AI stocks you can buy, and while its P/E ratio has spiked to 64, its forward P/E based on future earnings is reasonable at 31. However, investors should keep in mind that the stock price jumped some 15% today on the news, so pick your spot to get in.
