A recent analysis of the Nasdaq Composite reveals that the tech-heavy index has historically experienced an average annual rise of 19% following a recovery year, such as the one witnessed in 2023. This presents an opportune time for investors to consider stock-split stocks as a way to potentially benefit from this upward trend. Stock splits occur when a company divides each share into lower-priced units, encouraging liquidity and attracting smaller investors. While these events do not directly impact a company’s fundamentals, they typically serve as positive indicators that a stock is moving in the right direction.
1. Nvidia
Nvidia’s stock has shown remarkable growth over the past decade, with the exception of a significant crash in 2022. To keep prices at a reasonable level, Nvidia’s management has implemented five stock splits, most recently a 4-for-1 conversion in July 2021. Despite the significant increase in share prices since then, it is not too late for investors to participate in Nvidia’s continued success.
Nvidia’s growth has largely been driven by its ability to capitalize on new technologies faster than its competitors. The company first gained prominence for its graphics processing units (GPUs), initially designed for video game visuals before finding application in the cryptocurrency mining industry. However, the advent of generative artificial intelligence (AI) holds immense potential for Nvidia’s future. In the third quarter, AI chip sales contributed to a staggering 206% year-over-year revenue increase, reaching $18.1 billion. With market projections estimating the AI training hardware sector to expand to $400 billion by 2027, Nvidia has ample room for further growth.
Despite the anticipated increase in competition, Nvidia enjoys an economic moat owing to its agility in bringing products to market. This advantage has allowed the company to establish a robust developer community that has built software and servers around its hardware. This ecosystem has the potential to make it challenging for competitors to gain traction, thereby bolstering Nvidia’s market position.
2. Monster Beverage
Similar to Nvidia, Monster Beverage has witnessed significant growth over the past decade, resulting in numerous stock splits (six in total). The most recent split occurred in March of the previous year, offering a two-for-one conversion. Despite its $60 billion market capitalization, the energy drink manufacturer continues to maintain strong business momentum.
Although overall net sales increased modestly by 14.3% year over year to $1.9 billion, Monster Beverage experienced exceptional growth in its new alcohol division. Sales in this segment surged by 58% to $42.3 million following the launch of products such as The Beast Unleashed malt alcohol drinks, designed to cater to the company’s existing energy drink consumer base by utilizing similar flavors and branding.
Monster’s success in diversifying into the alcohol market highlights its brand appeal and its ability to leverage existing supply chains and distribution networks. With a forward price-to-earnings (P/E) ratio of 31, Monster’s stock appears slightly more expensive than the Nasdaq-100 average of 28. Nonetheless, this premium is warranted considering the company’s positive bottom-line performance. In the third quarter, net income grew by 40% year over year to $452 million.
While stock splits and historical patterns provide investors with added confidence, an analysis of fundamental factors remains crucial. Both Nvidia and Monster Beverage have demonstrated strong past performance, and, more importantly, possess the characteristics required for long-term growth and value creation.