After Nvidia's Stock Split, Could This Chip Stock Be Next? – The Motley Fool
Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation.
Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation.
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More
ASML's stock is hovering around $1,000 per share.
Stock splits are back in vogue.
After several years with hardly any stock splits on the market, big companies now seem to be eager to reverse course. Nvidia (NVDA -0.09%), for example, just became the fifth of the “Magnificent Seven” stocks to split its shares in less than four years, announcing a 10-for-1 stock split that’s set to go into effect on June 7.
Nvidia shares are up roughly 20% since the announcement, benefiting from a strong earnings report, and it’s joined Walmart and Chipotle as stock-split winners this year.
With all three stocks posting significant gains following the stock-split announcements, it’s only natural to ask which company might be the next to follow suit, and one semiconductor equipment manufacturer seems like an obvious candidate.
Image source: Getty Images.
With its share price hovering near $1,000, ASML (ASML -2.30%) seems like a good candidate to be the next big tech stock to split its shares.
After all, ASML has the components that usually help trigger a stock split. It’s experienced significant price appreciation in recent years, up more than 400% over the last five years and more than 1,000% over the past decade, and its individual share price is high more than $1,000. In fact, ASML’s recent price of $965.48 (as of Monday’s close) is above where Nvidia’s was when it announced its 10-for-1 stock split, and it’s climbed since. Management also seems increasingly confident that the company is about to enter a new demand cycle.
ASML, which makes the equipment that chipmakers like Taiwan Semiconductor Manufacturing use to produce chips, has had three stock splits in its history, but it hasn’t done one since 2000. The company even had an unusual 8-for-9 reverse split in 2007, which was enacted in combination with a plan to return 960 million euros to shareholders.
ASML has not given any indication that it plans a stock split, but it seems as though one is likely if its stock price continues to rise.
ASML has a history of delivering strong results for investors due to its steady growth and high profit margins. It also has one of the widest economic moats in the semiconductor industry.
The company is the leading maker of lithography systems used to make semiconductors, and it is the only manufacturer of extreme ultraviolet (EUV) lithography systems, which make advanced chips that are as small as 2 nanometers. ASML says that its EUV tech prints microchips with light at a wavelength of 13.5 nm, which is nearly X-ray range.
ASML makes highly technical machines that are very expensive, and it only sells about 100 of them each quarter. Because of that, its results tend to be cyclical, and revenue recently declined on a year-over-year basis.
However, management says it’s in the middle of a transition year as its non-EUV business declines, and the company expects revenue growth to accelerate in the second half of this year and into 2025. Among the catalysts it sees in 2025 are secular growth in semiconductor end markets, including green energy, electric vehicles, and artificial intelligence. Additionally, there’s a broader cyclical upturn in the chip sector, as well as a large number of new fabs planned that are going to rely on ASML’s equipment.
Regardless of whether ASML announces a stock split anytime soon, the shares still look like a buy. Demand for semiconductors is only growing, and with it, the demand for the advanced chips that ASML’s systems specialize in making, and that should help widen its economic moat.
For patient investors, buying ASML stock now should pay off once its next growth cycle arrives later this year and into 2025.
Jeremy Bowman has positions in Chipotle Mexican Grill. The Motley Fool has positions in and recommends ASML, Chipotle Mexican Grill, Nvidia, Taiwan Semiconductor Manufacturing, and Walmart. The Motley Fool has a disclosure policy.
Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services.
Making the world smarter, happier, and richer.
© 1995 – 2024 The Motley Fool. All rights reserved.
Market data powered by Xignite and Polygon.io.
