Two AI Stocks with Imminent Stock Splits, Suggested by Wall Street Analysts for Potential Price Surges
When a company announces a stock split, it ain't messin' with the business's fundamentals or the stock’s core. It's just splitting the company into smaller pieces for retail investors to afford the stock more easily. But, a stock split can sometimes be a signal that the run-up in price that led to the split could keep on climbing for the foreseeable future, and Wall Street tends to agree.
Two AI stocks looking like they could keep going higher are Lam Research (LRCX, at 4.56%) and Palo Alto Networks (PANW, at 3.41%).
For Lam Research, which trades around $75, analysts' average price target is $100, implying 33% upside. And for Palo Alto Networks, priced around $180, analysts' median price target is $225, indicating 25% growth potential. These stocks are worth taking a closer look at, according to Wall Street.
1. Lam Research
Lam Research is one of the major players in manufacturing wafer fabrication equipment, crucial for making those fancy AI chips big tech companies are snatching up. Their equipment is particularly useful in creating memory chips, essential for both training larger AI models and on-device AI inference.
With the growing demand for AI chips, Lam aims to capture more than 50% of the incremental growth in its serviceable addressable market over the next four years, leading to an acceleration in revenue growth. Their management predicts revenue growth of between 11.5% and 13.6% over the next four years and expects their operating margin to expand, reaching the mid-30% range from 30.6% in 2024.
Lam is well-positioned to execute its objectives, thanks to growing memory demand, major customers, and ongoing investments in research and development to create the next advancements in chip etching and deposition—ensuring they win new contracts with manufacturers as they expand and upgrade old equipment.
Lam Research's stock trades for less than 20 times forward earnings, offering a great deal for a stock with the potential to accelerate revenue and expand its margins over the next few years, as demand for its products continues to grow. Management has also committed to returning 85% of its growing free cash flow to shareholders through dividends and buybacks, further boosting its future earnings per share, making the current valuation even more attractive.
2. Palo Alto Networks
Palo Alto Networks is a leading provider of cybersecurity software and equipment. With more offices adopting hybrid work environments, migrating data and operations to the cloud, and increasing automation with AI, the demand for cybersecurity has skyrocketed.
Palo Alto has been supplying more and more tools and software to help enterprises protect their data. In the last year, they've been working on unifying all their products into a single system with a shared data store, called "platformization." They had 1,150 platformizations as of their latest quarter, a 35% increase from a year ago.
Their new strategy makes their cybersecurity solutions even stickier. Plus, consolidating enterprise security needs into a single data silo gives Palo Alto a significant data advantage to support its machine learning algorithms, allowing it to identify and stop threats faster than competitors.
This growth is reflected in Palo Alto Networks' figures: annual recurring revenue for their next-gen solutions increased 37% year over year in their most recent quarter, reaching $4.78 billion. On top of that, their remaining performance obligations growth accelerated to 21% year over year, signifying a strong and growing pipeline for the business.
Palo Alto Networks' stock trades for an enterprise value of about 13 times analysts' expectations for revenue in the current fiscal year. That's not exactly cheap, but it might be worth the price for a company that's looking to grow its top line by roughly 15% per year for the foreseeable future, according to Wall Street analysts. With growing margins from platformization efforts, the stock could easily climb closer to the median Wall Street estimate over the next year.
This text has been rewritten to provide a more informal and conversational tone while incorporating actionable insights from the provided enrichment data. The new version highlights the key advantages of both Lam Research and Palo Alto Networks, such as innovative technologies, market position, and financial strength, to create an engaging and informative piece for investors.
In the realm of AI stocks, Lam Research and Palo Alto Networks are set to climb higher in the coming years according to Wall Street.
For Lam Research, the company's expertise in manufacturing wafer fabrication equipment for AI chips has them well-positioned to capture a significant chunk of the growing market. Analysts are bullish, with an average price target of $100, indicating a potential 33% upside for the stock. Moreover, the company aims to expand revenue growth by more than 50% over the next four years, making it a worthy investment.
On the other side, Palo Alto Networks, a leading cybersecurity provider, is poised to grow as more businesses adopt hybrid work, cloud migration, and AI automation. Their new strategy, 'platformization,' consolidates enterprise security needs into a single data silo, giving them an edge in threat identification and faster response times. With analysts predicting a 15% annual growth rate for Palo Alto, their stock trades for 13 times current fiscal year revenue expectations, signaling potential growth.
Both stocks offer promising opportunities for investors, and with the majority of their free cash flow being returned to shareholders, the future looks bright for these tech titans. So, consider taking a closer look at Lam Research and Palo Alto Networks when planning your investments for 2024 and beyond.
