For more than a year, the two hottest trends on Wall Street have been the rise of artificial intelligence (AI) and investors' newfound love for companies enacting stock splits. Last week, these two trends collided when AI titan Nvidia (NVDA 6.76%) completed a 10-for-1 stock split.
A stock split is a purely cosmetic event that alters a company's share price and outstanding share count by the same magnitude. In Nvidia's case, it increased the company's share count by a factor of 10 while reducing its share price to 1/10th of what it had been trading at. Stock splits have no impact on a company's market cap or its underlying operations.
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Stock splits also come in two flavors: forward and reverse. A forward-stock split, which is what Nvidia just conducted, is designed to make shares more nominally affordable for everyday investors. A single share of Nvidia now costs around $120, compared to $1,200 during the previous week.
Meanwhile, the purpose of a reverse-stock split is to increase a company's share price. This is typically done to ensure that minimum listing standards on major stock exchanges are met.
Since 2024 began, more than a half-dozen high-flying businesses with well-defined competitive advantages have conducted forward-stock splits. AI juggernaut Nvidia just happens to be the most high-profile of the bunch.
Nvidia's graphics processing units (GPUs) have rapidly become the standard in AI-accelerated data centers, fueling a 700%-plus increase in the company's share price since 2023 began. With demand for the company's H100 GPUs handily outpacing supply, Nvidia has had no trouble raising the price of these units and increasing its gross margin to an eye-popping 78.35% in the fiscal first quarter (ended April 28). In other words, splitting its stock for a second time since July 2021 was a no-brainer decision for Nvidia's board.
However, Nvidia is unlikely to be the only fast-paced stock to complete a split in 2024. While there are a number of logical candidates to become Wall Street's next stock-split stock, including Costco Wholesale, Broadcom, and Meta Platforms, there are two rapidly growing dark horse candidates that may be likeliest to follow in Nvidia's footsteps.
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CrowdStrike Holdings
The first hypergrowth stock that could surprise Wall Street and become the next stock-split stock is endpoint cybersecurity leader CrowdStrike Holdings (CRWD 2.34%). CrowdStrike has never conducted a stock split, but its shares moved up to nearly $370 in after-hours trading on June 7, following the announcement that it was being added to the benchmark S&P 500.
Since its initial public offering (IPO) in 2019, CrowdStrike has returned more than 500% for its shareholders. This is a reflection of changing variables in the cybersecurity space, as well as its unique innovation and superior platform.
The beauty of cybersecurity solutions is that they've evolved from optional to necessary. Businesses with an online or cloud-based presence are increasingly relying on third-party cybersecurity companies to fight back against hackers and robots that don't take any time off and don't care how well or poorly the U.S. and global economy are performing. According to CrowdStrike, its total addressable market is expected to more than double from $100 billion in 2024 to $225 billion by 2028.
The secret sauce that's made CrowdStrike such a success is its cloud-native, AI- and machine learning-driven platform known as Falcon. Every week, Falcon is overseeing trillions of events and becoming progressively smarter when it comes to identifying and responding to potential threats.
What's particularly noteworthy about CrowdStrike is its retention rate. CrowdStrike's software-as-a-service (SaaS) solutions aren't anywhere close to the cheapest on the market. Yet its retention rate has consistently hovered around 98%. Businesses have demonstrated a willingness to pay more for a premium product, which is what CrowdStrike offers.
Furthermore, CrowdStrike is reaping the rewards of add-on sales. As of the end of the company's fiscal first quarter (April 30), 65% of its clients had purchased at least five cloud modules. Its SaaS model delivered an 80% adjusted subscription gross margin in fiscal 2024 (ended in late January), which suggests CrowdStrike's supercharged sales and earnings growth rates are sustainable.
Visa
The other hypergrowth company that's a dark horse candidate to walk in Nvidia's footsteps and become Wall Street's next stock-split stock is payment-processing colossus Visa (V -1.00%).
Since Visa's IPO in March 2008, the company has completed one forward split (4-for-1 in March 2015). What's interesting about this split is that it occurred when Visa was trading at roughly $268 per share. The stock ended last week at nearly $279, and topped $290 per share three months ago. Based on what its board has historically done, a stock split would seem likely.
Additionally, Visa's employee stock purchase plan (ESPP) allows its workers to purchase shares at up to a 15% discount. Just as Walmart and Chipotle Mexican Grill announced forward splits earlier this year to encourage employees to participate in their respective ESPPs, Visa might be enticed to do the same.
Perhaps the best thing about Visa's operating model is that time is very much in its corner. Although recessions are a normal and inevitable aspect of the economic cycle, the phases of this cycle usually differ in length. Whereas a majority of U.S. economic downturns have resolved in under a year since the end of World War II, the typical expansion endures for multiple years. This lets Visa reap the rewards of consumers and businesses spending more during long-tailed growth phases.
Another reason investors can confidently place their trust in Visa over the long run has been management's decision to steer clear of lending activity. While I have little doubt that Visa would be a successful lender on brand name alone, doing so would expose the company to credit delinquencies and loan losses during a recession. By strictly focusing on payment facilitation, the company avoids the need to set aside capital to cover potential loan losses. This decision is why its profit margin has stayed above 50%!
The Visa growth story is also about international expansion. On top of being the undisputed leader in credit card network purchase volume in the U.S., Visa is staring down a multidecade opportunity to organically or acquisitively expand into chronically underbanked emerging market regions, which includes the Middle East, Africa, and Southeastern Asia. Visa's growth runway genuinely extends for decades to come.
