Predicting the First AI Company to Split Its Stock by 2025

Recently, stock splits have gained popularity in the technology sector. Many tech companies have decided to implement stock splits as a strategy to lower their share prices. This trend includes notable companies such as Nvidia, Alphabet, Tesla, and Broadcom. By doing so, these companies hope to attract a larger base of investors who find lower-priced shares more appealing.

To better understand stock splits, it's important to clarify that a forward stock split, which is the most common type, does not change the overall value or potential of the company. Instead, it increases the number of shares available while decreasing the price of each share. This can lead to greater demand for the stock, which some believe may eventually result in an increase in the stock price.

One company that might consider a stock split in 2025 is ASML. The Dutch semiconductor equipment manufacturer has seen its stock lag behind the market in recent years, with a gain of only 22% while the broader PHLX Semiconductor Sector has soared by 94% in the same time frame.

ASML is scheduled to announce its fourth-quarter 2024 results on January 29. Investors are curious whether management will announce a stock split during this event and whether it would be prudent to purchase ASML shares before any such move.

ASML's History with Stock Splits

ASML has executed stock splits four times since it went public in 1995. Out of these, three were forward splits. The last time the company implemented a stock split was in 2007, when it executed an 8-for-9 reverse split in order to optimize its capital structure. A reverse split does the opposite of a forward split: it raises the share price while reducing the total number of shares.

Since its last split in 2007, ASML's stock price has increased dramatically, jumping more than 1,900%. Currently, shares are trading around $764, which leads some to believe that another stock split could be on the horizon. Investors are particularly keen to see if management will take this step when it announces its results this month.

Despite the appeal of a stock split, it's worth noting that many brokerage firms now offer the option for investors to purchase fractional shares. Thus, initiating a position in ASML might be a good strategy whether or not a split occurs. Let’s delve into some reasons supporting this.

Strong Long-Term Prospects for the Semiconductor Giant

The stock has struggled in the latter half of 2024 after a positive start. Several factors have contributed to this decline: concerns about restrictions on sales of ASML’s chipmaking equipment to China and a slower-than-expected recovery in semiconductor markets—excluding the artificial intelligence (AI) segment—resulted in weaker order volumes in the third quarter of 2024.

Furthermore, ASML's revenue forecast for 2025 is between 30 billion to 35 billion euros (approximately $31.1 billion to $36.3 billion), which falls within the lower end of their previously issued guidance of 30 billion to 40 billion euros from 2022. However, management remains optimistic about long-term growth prospects, especially due to catalysts related to AI.

During its 2024 investor day, held last November, ASML reaffirmed its revenue target for 2030, aiming for figures between 44 billion to 60 billion euros. If ASML achieves its estimated midpoint revenue for 2025 of 32.5 billion euros, the company could see its revenue grow at a compound annual growth rate (CAGR) of nearly 10% over the following five years.

The forecast for 2030 also suggests a promising gross margin increase from the 51% to 53% range projected for 2025. This indicates that ASML's profit margins could grow significantly, thereby enhancing profitability overall. The management emphasized that AI will be crucial for achieving these long-term goals.

More specifically, ASML anticipates sustained demand for its extreme ultraviolet (EUV) lithography systems, essential for producing advanced chips. With the expectation that chipmakers will ramp up their spending on this equipment at a double-digit CAGR from 2025 to 2030, it stands to reason that ASML will benefit from this trend, especially as these lithography systems are vital for processing chips used in AI applications.

Research and Markets estimates that the EUV lithography market could generate annual revenues of $22.7 billion by 2029, up from $12.2 billion last year. Given ASML's dominant position in the EUV market, this growth presents a substantial revenue opportunity that could lead to robust increases in both revenue and profits.

Analysts predict a 26% jump in earnings per share (EPS) for ASML in 2025, following an estimated decrease of 4% in 2024.

Looking ahead, ASML is expected to maintain strong earnings growth, with forecasts indicating over 25% growth in 2026 as well. The stock is currently trading at 31 times forward earnings, which is slightly less than the Nasdaq-100 index's earnings multiple of 32. This may present a favorable buying opportunity regardless of whether the company executes a stock split.

Disclosure: The author has no position in any of the stocks mentioned, and ASML and other associated companies are recommended by various analysts.

Stock, AI, Market