Stock splits serve as more than just a way to make a company’s stock price more accessible.
They can also be a signal to investors about the health and competitive advantage of a business. This is because a stock split usually happens after significant, sustained price appreciation, which is uncommon for less successful companies. However, investors should still do thorough research before acting on this signal.
Last year, Super Micro Computer (SMCI) and Arista Networks (ANET) split their stocks to make shares more accessible to a broader range of investors. Super Micro executed a 10-for-1 split on October 1, while Arista implemented a 4-for-1 split on December 4. Wall Street analysts still anticipate gains in both stocks:
Super Micro has a median 12-month target price of $50 per share, which implies a potential 38% upside from the current price of $36. Arista Networks has a median 12-month target price of $125 per share, which indicates a potential 54% upside from its current price of $81.
Here’s a closer look at these artificial intelligence (AI) stocks.
Super Micro Computer: Potential 38% Upside
Super Micro manufactures storage systems and servers, including fully assembled server racks that provide comprehensive data center infrastructure. The company uses standardized electronic components across its product range to quickly build a wide variety of hardware, incorporating the latest chips from suppliers like Nvidia.
According to CEO Charles Liang, Super Micro often beats its competitors to market by several months. This first-mover advantage, coupled with its extensive product portfolio, has made it a major player in the AI server market, though analysts disagree on its exact market share. Bloomberg places Super Micro in second place, just behind Dell Technologies, while Counterpoint Research considers it the market leader.
Significantly, AI server spending is projected to increase by 55% in 2025. Super Micro reported disappointing financial results for the second quarter of fiscal 2025, ending in December 2024. Revenue increased by 55% to $5.7 billion, but gross margin declined by 3 percentage points, and GAAP net income remained flat at $0.51 per diluted share.
The company also lowered its full-year guidance.
Super Micro has recently been dealing with a series of regulatory issues that began last August when short-seller Hindenburg Research accused the company of accounting manipulation. These allegations were especially concerning given that Super Micro paid a $17.5 million fine for similar accounting violations in 2020.
However, it appears Super Micro may have weathered the storm, as a Justice Department probe is reportedly ongoing. The company recently filed overdue annual and quarterly reports without any restatements, meaning its new auditor found no evidence of accounting manipulation. The company is now back in compliance with Nasdaq Stock Exchange listing requirements.
I recommend investors monitor Super Micro for another quarter before buying the stock. The lack of earnings growth in the December quarter is a concern, particularly given the current high spending on AI. If Super Micro shows signs of improvement in the next quarter, buying shares at that point might be a good move. Investors should closely monitor the gross margin. If it continues to decline, Super Micro may be losing pricing power due to increased competition.
Arista Networks: Potential 54% Upside
Arista Networks provides networking solutions for enterprise and cloud data centers, as well as campus environments. Its portfolio includes switching and routing platforms that, unlike some competitors’ hardware, use a single operating system across all environments, which simplifies network maintenance.
Arista also provides complementary software for telemetry and security. Over the past decade, Arista has consistently gained market share from Cisco Systems and now leads the market in data center switches.
Furthermore, Arista has three times more market share than Cisco in data center switches with capacities of 100 gigabits per second or greater, which are essential for complex data center tasks like training machine learning models and running AI applications.
Arista reported strong financial results in the fourth quarter. Revenue increased by 25% to $1.9 billion, and non-GAAP net income also increased by 25%, reaching $0.65 per diluted share.
The only disappointing news was that Meta Platforms accounted for 15% of sales, down from 21% the previous year. However, Microsoft represented 20% of sales, up from 18%. Moreover, Arista recently added Apple and Oracle as customers.
Wall Street analysts estimate Arista’s earnings will increase by 10% in 2025. While this makes its current valuation of 37 times earnings appear expensive, I believe these analysts are overly pessimistic.
Arista expects revenue to increase by 24% in the first quarter, and margin guidance suggests earnings will grow at a similar pace. The company has exceeded consensus estimates by an average of 14% in the last six quarters.
If this trend continues, the current valuation appears sensible. Therefore, investors with a minimum three-year investment horizon should consider initiating a small position in Arista today.
