3 Stock-Split Stocks With 52% to 701% Upside, According to Wall Street

As the past 17 months have shown, investing on Wall Street can be unpredictable. The major U.S. indexes followed up one of the steadiest years of gains in recent memory (2021) with an absolute stinker of a bear market last year.

But if there’s one thing you can always count on, it’s investors seeking out the proverbial light at the end of the tunnel. When the going has gotten rough the past couple of years, investors have widely turned to outperforming stock-split stocks.

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A stock split is an event where a publicly traded company alters both its share price and outstanding share count without having any impact on its market cap or operations. This cosmetic change to a company’s share price can make it more nominally affordable for everyday investors (i.e., a forward stock split) or lift its share price to ensure it meets the minimum share-price listing standards on a major U.S. exchange (i.e., a reverse stock split).

The vast majority of investors focus their attention on stocks enacting forward splits. That’s because companies enacting forward splits are typically firing on all cylinders and handily out-innovating their peers. It’s why their share prices were flying high in the first place.

The outperformance of stock-split stocks isn’t lost on Wall Street institutions, analysts, or industry pundits. Based on a handful of high-water price targets, Wall Street believes the following three stock-split stocks will catapult higher by 52% to 701%.

Tesla: Implied upside of 701%

The crème-de-la-crème of stock-split stock upside opportunities, at least according to one pundit, is electric vehicle (EV) manufacturer Tesla (TSLA -0.74%). Tesla completed a 3-for-1 stock split in late August 2022.

According to Ark Invest CEO and Chief Investment Officer Cathie Wood, Tesla can ride its first-mover advantages in the EV space to a $2,000 share price by 2027. This price target from Ark implies 701% upside to come for Tesla stock, as well as a $6.3 trillion market cap. That’s more than 2 times the current market cap for Apple, the largest publicly traded company in the U.S.

Wood’s Monte Carlo analysis makes a number of bold claims that, frankly, I don’t believe have any chance of coming to fruition. Ark’s estimate calls for between 10.3 million (the bear case) and 20.7 million (bull case) EVs produced in 2027, with the bull model targeting $613 billion in annual autonomous ride-hailing revenue. 

One of the key problems with Wood’s analysis is that Tesla is no closer to mastering ride-hailing autonomy than it was five years ago. Tesla’s artificial intelligence (AI)-driven EVs are capable of Level 2 full self-driving (FSD), which means they can handle partial autonomy, with the driver ready to take over at any time. Despite CEO Elon Musk claiming that 1 million robotaxis would be on public roads years ago, Tesla doesn’t have a single robotaxi on the road today.

It’ll also be incredibly difficult to even hit Wood’s low-end production forecast of 10.3 million EVs by 2027. Even with the Berlin and Austin Gigafactories ramping up production, Tesla’s four total Gigafactories are on track to eventually hit or perhaps slightly top 2 million EVs in annual run rate output. Unless the company is opening three Gigafactories annually over the next four years, and can ramp up production with zero snafus, sustaining Wood’s production forecast won’t be doable.

I’d be remiss if I didn’t also mention that Musk is a financial and legal liability to the company. More often than not, Musk’s promised innovations fail to come to fruition or get kicked further down the line. In short, I don’t expect Tesla to come anywhere close to Wood’s price target.

Amazon: Implied upside of 52%

Another stock-split stock that at least one Wall Street analyst believes could soar is e-commerce kingpin Amazon (AMZN -0.19%), which enacted a 20-for-1 stock split in early June 2022.

Topping the list of Amazon bulls is analyst Ivan Feinseth of Tigress Financial. Feinseth, who lowered his firm’s price target on Amazon last year, has stuck to an aggressive prognostication of $192 per share. If Amazon were to reach this target, which would be close to its previous all-time high, investors would enjoy 52% additional upside.

Perhaps the biggest knock against Amazon heading higher is the growing likelihood that the U.S. will enter a recession. The Federal Open Market Committee, which is the 12-member body responsible for making monetary policy decisions, has included a mild recession into its outlook for the second half of this year. Since Amazon generates a lot of its revenue from its world-leading online marketplace, there’s the belief that it would struggle if a recession took place.

However, where Amazon brings in most of its revenue and where it generates the bulk of its cash flow are two very different things. While it is the online retail kingpin, e-commerce is a low-margin segment. Rather, Amazon generates most of its operating cash flow from a trio of ancillary services: Amazon Web Services (AWS), advertising services, and subscription services.

Among these three ancillary operations, cloud infrastructure service provider AWS is the most important. AWS accounts for nearly a third of global cloud infrastructure spending, and the margins associated with cloud services are many multiples higher than online retail sales. AWS is often responsible for most/all of Amazon’s operating income. 

While this might be hard to fathom, Amazon is also historically cheaper than it was during the entirety of the 2010s. Investors willingly paid between 23 and 37 times year-end cash flow to own shares of Amazon between 2010 and 2019. They can buy those same shares today for about 13 times forecast cash flow for 2024. In other words, Feinseth’s price target may well be in the cards at some point in the future.

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Nvidia: Implied upside of 52%

The third stock-split stock with serious upside, at least based on the forecast of one Wall Street analyst, is semiconductor solutions specialist Nvidia (NVDA 4.81%). In July 2021, Nvidia completed a 4-for-1 forward split.

According to analyst Hans Mosesmann at Rosenblatt Securities, Nvidia can hit $600, which would equate to a market cap approaching $1.5 trillion. It’s worth noting that Mosesmann raised his firm’s price target on Nvidia from “just” $320 to $600 following the company’s fiscal first-quarter operating results. Nvidia’s fiscal year ends in late January.

The fuel behind the wave of price target increases Nvidia has enjoyed in 2023 has to do with its role in the rise of AI. Artificial intelligence describes the use of software and systems for tasks normally assigned to humans. Thanks to machine learning, software and systems can learn and evolve over time, thereby becoming more efficient at their tasks.

Although Nvidia has AI-based solutions of its own, such as virtual agents for businesses, it’s best known for developing the AI-driven graphics processing units (GPUs) — the A100 and H100 — being used in data centers to power AI software and systems. Whereas Wall Street was expecting Nvidia to guide to $7.2 billion in sales for the fiscal second quarter, Nvidia provided guidance of $11 billion in sales, with AI data center demand driving its upside. 

The biggest problem for Nvidia is going to be justifying its valuation. Although AI very clearly looks like Wall Street’s next-big-thing investment, every “next big thing” over the past 30 years went through a hype/bubble period. While there will undoubtedly be winners in the AI space, expectations often outpace actual demand. I suspect this will be the case with Nvidia’s GPUs, which makes the company’s multiple of 55 times consensus earnings in fiscal 2024 a tough pill to swallow.

Additionally, Nvidia’s higher-margin gaming segment has underperformed of late. While gaming GPUs were in high demand during the pandemic, the rollout of vaccines and the return to some semblance of normal has had the opposite effect.

Nvidia has been a fun story stock in 2023; but unless its bottom-line does some serious catching up, I don’t see it having any chance to reach $600.