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History Says The Nasdaq Could Soar Again In 2025: 1 Artificial Intelligence (ai) Stock-split Stock To Buy Before That Happens
Following a solid couple of years in 2023 and 2024, it wouldn't be surprising to see the Nasdaq Composite index fly higher in the new year. It could grow due to several factors, such as strong economic growth in the U.S., controlled inflation, higher consumer spending, and the growing adoption of disruptive technology trends such as artificial intelligence (AI).
Even historical trends point toward another year of solid growth in the Nasdaq Composite index. The index gained 34% in 2024 following a 43% jump in 2023. History says that the Nasdaq Composite has averaged an annual gain of 17% in a year following one in which it jumped more than 20%. The average annual gain in the year following one in which it jumped more than 30% stands at 19%.
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Of course, there is no guarantee that the index will head higher in 2025 based on historical factors alone. However, there are certain catalysts that could indeed make history repeat in 2025. That's why it is a good time to take a closer look at a Nasdaq stock that recently underwent a stock split and has the potential to deliver impressive gains in 2025.
This AI company split its stock recently, and its results point toward an acceleration in growth
Many companies executed stock splits last year, including major names such as Nvidia, Broadcom, and Palo Alto Networks. A stock split is nothing more than a cosmetic move that simply increases the number of a company's outstanding shares while simultaneously reducing its share price. There is a belief that a forward stock split makes a company's shares accessible to a wider pool of investors, thereby increasing the demand for the stock to undergo a split.
Nevertheless, a stock split doesn't alter the fundamentals of a company. Lam Research (NASDAQ: LRCX) recently executed a 10-for-1 forward stock split on Oct. 2, 2024. Though shares of this semiconductor equipment supplier lost more than 4% of their value since the split was executed, its solid fundamentals and prospects suggest that its fortunes could turn around, and could soar impressively in the coming year.
That's because Lam Research is on track to take advantage of stronger growth in semiconductor capital equipment spending in 2025. According to industry association SEMI, spending on semiconductor manufacturing equipment increased 6.5% in 2024 to $113 billion. In 2025, the association expects spending to jump to $121 billion, followed by a bigger jump in 2026 to $139 billion.
SEMI points out that investment in equipment required for manufacturing dynamic random access memory (DRAM) and high-bandwidth memory (HBM) for tackling AI workloads is going to play a critical role in driving higher spending. That's not surprising, as key chipmakers such as Nvidia and Broadcom have been packing more HBM into their AI processors, thanks to the ability of these chips to enable fast data transfer to support AI applications.
The overall growth in semiconductor spending, especially the outlay on memory equipment, is going to be a tailwind for Lam Research. The company gets 65% of its revenue from selling foundry and logic manufacturing equipment, while the remaining 35% comes from sales of memory manufacturing equipment.
Investors should note that sales of foundry/logic manufacturing equipment are expected to grow 2.8% in 2025 following a flat performance last year. Meanwhile, sales of DRAM equipment are forecast to jump 10.4% this year, along with a sharp increase of 48% in NAND flash memory equipment. Lam Research, therefore, is on track to witness growth in all of its end markets, and that explains why the company's financial performance is set to improve.
When Lam released its fiscal 2025 first-quarter results (for the three months ended Sept. 29, 2024), the company reported a 20% year-over-year increase in revenue to $4.17 billion. Its non-GAAP earnings jumped 25% year over year to $8.60 per share. Lam has guided for $4.3 billion in revenue for the fiscal second quarter, which would be a 14% jump from the year-ago period. Its earnings are expected to jump 16% year over year to $0.87 per share at the midpoint of its guidance range.
The good part is that analysts are expecting Lam to maintain its healthy growth throughout the current and the next fiscal year, which could lead to a healthy upside in the company's stock price.
How much upside can investors expect?
Consensus estimates are projecting Lam's earnings to land at $3.54 per share in fiscal 2025, which would be a 17% increase from the previous fiscal year. Given that Lam has generated $1.57 per share in earnings in the first half of fiscal 2025, its earnings in the second half are expected to land at $1.97 per share (based on the full-year consensus estimate).
A similar earnings growth rate of 17% is expected in fiscal 2026, with Lam expected to report $4.17 per share in earnings in the next fiscal year. Lam's current fiscal year will finish at the end of June 2025, which means the rest of the calendar year will coincide with the first two quarters of fiscal 2026.
Assuming Lam's bottom line lands at $2.09 per share in the first six months of fiscal 2026 (dividing the full-year earnings estimate by half), its earnings for calendar 2025 could land at $4.06 per share (adding the projected earnings for the second half of fiscal 2025 to the projected earnings for the first half of fiscal 2026).
If one multiplies the projected earnings for calendar 2025 by the Nasdaq-100 index's forward earnings multiple of 26.4, Lam's stock price could hit $107. That would be a 37% increase from current levels. With Lam currently trading at 20 times forward earnings, a discount to the Nasdaq-100 index, investors are getting a good deal on this AI stock that seems capable of delivering healthy gains in 2025 and beyond.
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*Stock Advisor returns as of January 6, 2025
Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lam Research and Nvidia. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.
