This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Investors went wild for Nvidia's (NASDAQ: NVDA) stock split.
Shares of the artificial intelligence (AI) chip leader jumped 27% from the stock split announcement on May 22 to the execution of the split on June 7.
The gains were enough to put Nvidia past the $3 trillion market cap mark and within a hair of becoming the most valuable company in the world. (It's in a close three-way race with Apple and Microsoft.) While a strong first-quarter earnings report from Nvidia also helped give the stock a boost, the stock split seemed to be the main reason for the 27% pop. Shares continued to march higher after the earnings report, and even gained another 9% in the week after the split went into effect.
Now, fellow chip stock Broadcom (NASDAQ: AVGO) is taking a turn. Following Nvidia's 10-for-1 stock split, Broadcom announced a similar 10-for-1 split when it reported fiscal second-quarter earnings after hours on June 12. Broadcom's stock split is set to go into effect on July 15.
Investors seem to like the move. Shares of Broadcom, which may be best known for its networking chips, have already jumped 16% in the two days since the announcement.
Broadcom was due for a stock split
Broadcom shares now trade above $1,700, higher than Nvidia was before its stock split. This is one of the highest share prices on the market.
In the announcement, management said the stock split was intended to "make ownership of Broadcom stock more accessible to investors and employees."
Since it was acquired by Avago (which took the name Broadcom) in 2016, the company hasn't split its stock, though the old Broadcom split its stock three times between 1999 and 2006.
While the share price appreciation is one reason for the stock split, Broadcom's growth potential in the generative AI era offers another reason for the split.
Broadcom acquired virtualization software specialist VMWare late last year, and VMware has been the primary driver of its growth. Revenue jumped 43% in the second quarter to $12.5 billion, ahead of estimates at $12 billion, though without VMware, revenue rose 12%.
Management also said revenue from AI products reached $3.1 billion, representing roughly a quarter of total revenue. Management said demand from cloud infrastructure companies for both networking and custom accelerators is strong. It now expects networking revenue to grow 40%, compared to its earlier forecast of 35%, due to AI demand. It also raised its full-year revenue guidance from $50 billion to $51 billion, $11 billion of which would be AI revenue.
Is Broadcom a buy?
With or without the stock split, Broadcom looks like a smart long-term stock to own. The company has a long history of successfully integrating acquisitions and cutting costs, and it looks poised to do that again with VMware.
Meanwhile, the company might not have as much exposure to AI as Nvidia, but its competitive strengths in areas like networking and custom ASIC chips are becoming apparent. For example, seven of the largest eight AI clusters in deployment today use Broadcom Ethernet solutions.
Broadcom stock has soared in recent months so some of the growth in AI is baked into the price. But its financials also got a boost from the VMware acquisition, which is giving profits a significant boost.
Buying Broadcom on the stock split alone isn't a good idea, but the split could help push shares higher in the coming months. As enthusiasm for AI stocks continues to percolate, Broadcom deserves to gain with the broader sector, as it's clearly benefiting from increasing demand for generative AI.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
