3 Stock-Split Stocks That Can Plunge Up to 29%, According to Select Wall Street

Guarantees are virtually nonexistent on Wall Street… with the exception of volatility. Short-term movements in the stock market’s major indexes are consistently unpredictable. During periods of heightened volatility (especially to the downside), it’s not uncommon for investors to seek the safety of industry-leading businesses that have historically outperformed the benchmark S&P 500.

Although the FAANG stocks have been popular with investors for years, companies enacting stock splits have been drawing a bigger audience during periods of uncertainty.

Image source: Getty Images.

A “stock split” is an event where a publicly traded company alters its share price and outstanding share count by the same magnitude. It’s a purely cosmetic move that has no impact on a company’s market cap or operating performance.

Stock spits come in two forms: forward and reverse. A forward-stock split lowers a company’s nominal share price to make it more affordable to buy for retail investors without access to fractional-share purchases. Conversely, the purpose of a reverse-stock split is to increase a company’s share price to ensure it meets the minimum continued listing standards on a major stock exchange.

While some reverse-stock splits have gone on to be successful over the long run (pull up a long-term chart of Booking Holdings if you don’t believe me), most investors are focused on companies enacting forward splits. Highfliers conducting forward splits are often out-innovating and out-executing their peers. In short, they’re just the type of businesses we’d expect to outperform over the long run.

But not all of Wall Street is convinced that certain stock-split stocks are headed higher. Based on low-water price targets from select Wall Street analysts, the following three stock-split stocks could plunge by as much as 29%!

Nvidia: Implied downside of 22%

The first stock-split stock that at least one analyst believes could fall off a bit of a cliff is none other than artificial intelligence (AI) juggernaut Nvidia (NVDA -0.79%). Nvidia recently announced its intent to conduct a 10-for-1 forward split, which follows up a 4-for-1 split completed in July 2021.

According to analyst Gil Luria of D.A. Davidson, Nvidia is worth $900 per share. If this were the price target a year ago, Luria would be viewed as one of the most bullish analysts on Wall Street. But with shares of Nvidia closing at just north of $1,148 on May 29, it implies the top-performing megacap since the start of 2023 could tumble 22%.

On the surface, Nvidia has been firing on all cylinders. The company’s H100 graphics processing units (GPUs) are the clear top choice by businesses operating AI-accelerated data centers. As a result, its pricing power has been off the charts and its gross margin has exploded to the upside.

Unfortunately for Nvidia, competition is unavoidable. During the third quarter, Intel is expected to roll out its Gaudi 3 AI-accelerator chip to its customers. Meanwhile, Advance Micro Devices has been increasing production of its MI300X GPU, which is also tasked with going head-to-head against Nvidia’s H100 chips in high-compute data centers.

The bigger concern, as I’ve pointed out on numerous occasions, is that Nvidia’s top customers are all developing AI-GPUs of their own. Microsoft, Meta Platforms, Amazon, and Alphabet account for roughly 40% of Nvidia’s sales, but are complementing Nvidia’s H100 chips with in-house GPUs. This year likely marks a peak in orders, gross margin, and GPU pricing power for Nvidia.

Lastly, history looks as if it’ll catch up with Nvidia. There hasn’t been a next-big-thing investment in three decades that’s avoided a bubble-bursting event. While artificial intelligence likely has a bright future, initial adoption and uptake of the technology will almost certainly be more challenging than investors anticipate. If the AI bubble bursts, no company will be hit harder than Nvidia.

Image source: Getty Images.

Amphenol: Implied downside of 29%

A second stock-split stock that one Wall Street pundit foresees plunging in the not-too-distant future is electronic components giant Amphenol (APH -0.53%). On May 20, Amphenol’s board approved a 2-for-1 forward split that’s expected to take effect on June 11.

Despite Amphenol running circles around the benchmark S&P 500 since the start of 1990 — a nearly 46,000% gain for Amphenol, compared to roughly 1,240% for the S&P 500 — Stifel analyst Matthew Sheerin has a tepid outlook for the company. Sheerin’s $95 price target implies shares of Amphenol will retrace 29% and shed roughly $23 billion in market cap in the process.

The most logical reason for Sheerin to be skeptical of Amphenol is the company’s valuation.

Amphenol’s secret to success is its bulk manufacturing of electric and fiber optic connectors, coaxial cables, and a host of other generally cheap components. It’s a company that’s been able to win the volume game and generate solid margins in the process.

But at the moment, it’s trading at north of 34 times forward-year earnings per share (EPS) with a forecast annualized earnings growth rate of 13.4% over the coming five years. By comparison, Amphenol has averaged a forward P/E multiple of 27 over the trailing-five-year period. With the exception of a relatively short span in early 2018, investors have to go back to the dot-com bubble to find the last time shares of Amphenol were this pricey on a trailing-12-month basis.

Amphenol is also cyclical, and…