Over the past year, while artificial intelligence (AI) has hogged all the limelight on Wall Street, there’s an emerging trend that’s causing investors to sway and swoon like never before – Companies embarking on stock splits. A stock split, a mere facelift for the stock price and share count of a publicly traded company, does little to shift the market cap or the operating dynamics of the company. Two distinctive flavors exist in the realm of stock splits – the reverse split, concocted to prop up the share price for a major exchange listing, and the forward split, a move to lower the share price making it affordable for investors eyeing fractional shares. The latter, the forward split, is where the charm lies as it typically heralds strength and innovation in the enacting company, inviting investors like bees to honey.
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Since the dawn of 2024, a dozen remarkable businesses have unveiled or wrapped up stock splits. Amidst this cluster of time-tested companies lies one standout stock-split gem, gleaming with promise for savvy investors in August. However, not all is gold in this stock-split bonanza, as two prominent stock-split stocks raise red flags that are hard to ignore.
Stock-split stock No. 1: A Cautionary Tale for Nvidia Investors
Steering clear in the month of August and beyond is the tech titan Nvidia. The company made headlines with its historic 10-for-1 stock split post the June 7 market close. Nvidia’s stronghold in AI-accelerated data centers can’t be overstated, commanding a staggering 98% share of graphics processing units shipped for data centers in 2023, as per Semiconductor analysis firm TechInsights.
Yet, beneath the veneer of dominance lies a realm of uncertainty. Amidst evolving competition in the high-stakes data center ‘real estate,’ with heavyweights like Advanced Micro Devices and Intel amping up their AI-GPU game, Nvidia faces rising pressure and dwindling space for its chips. The tides are shifting, evident in the top customers of Nvidia planning AI chip development, signaling a seismic shake-up in the market dynamics.
Looking back through the annals of history, Nvidia finds itself navigating treacherous waters. Comparable to the dot-com bubble era, where market giants Cisco Systems and Amazon peaked before the bubble burst, Nvidia mirrors a similar trajectory with a price-to-sales ratio echoing caution signs to wise investors.
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Stock-split stock No. 2: MicroStrategy – Proceed with Caution
Lurking in the shadows, another cautionary tale emerges with MicroStrategy, an AI-focused enterprise analytics software company. Droves of red flags adorn this stock-split stock, signaling a cautious approach for investors in August and the foreseeable future. The imminent 10-for-1 forward split set for August 7 should send alarm bells ringing.
Although wearing the cloak of a software company, MicroStrategy’s crown jewels lie in its possession of over 226,000 Bitcoins, a whopping 1% of the total Bitcoin supply. A bold move, positioning MicroStrategy as a major player in the cryptocurrency domain. Yet, this bold stance comes with its own set of challenges, making it a Pandora’s box for unwary investors.
While the allure of owning MicroStrategy shares over Bitcoin on a traditional exchange may seem tempting, pitfalls await the ill-informed. Scrutiny and vigilance are paramount as investors step into the sphere of MicroStrategy, where risks loom large, echoing a tale of caution and prudence in the unpredictable world of stock splits.