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Written by Sean Williams for The Motley Fool->
Stock-split euphoria has played an important role in lifting the broader market.
The newest stock-split stock aims to make its shares more nominally affordable for retail investors without access to fractional-share purchases through their broker.
This industry leader has a niche position within the semiconductor manufacturing process and has been foundational to the AI data center infrastructure build-out.
For the better part of the last four years, artificial intelligence (AI) has been Wall Street's hottest trend. But it's not the only trend that has investors flocking to winning stocks. Stock-split euphoria has also played a key role in sending the broader market higher.
In April, online travel leader Booking Holdings kicked things off by completing a 25-for-1 forward split. Then, just last week, online-based used-car retailer Carvana enacted its first-ever split (5-for-1). Now, we have a timeline to the next blockbuster stock split, which was just announced by semiconductor titan KLA Corp. (NASDAQ: KLAC).
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Following the closing bell on May 7, KLA's board of directors approved a 10-for-1 forward split, which will go into effect after trading ends on June 11. It's the sixth forward split in the company's history (the first since January 2000) and is on track to lower KLA's share price from $1,869.19, based on its closing price on May 8, to around $187.
According to KLA Chief Financial Officer Bren Higgins, "This stock split is intended to improve the accessibility and liquidity of KLA shares, while maintaining consistency with our long-term capital allocation strategy."
Thanks to the proliferation of brokerages allowing fractional-share purchases, the need to enact stock splits has declined noticeably from 10 years ago. Nevertheless, not all brokerages allow retail investors to purchase fractional shares. This means KLA's nearly $1,900 share price may be excluding some retail investors from joining the party. KLA's split will make its shares more nominally affordable.
Including dividends, shares of KLA Corp have skyrocketed by more than 51,100% since the beginning of 1994, and considerably more since its initial public offering in October 1980.
Let's be clear: 51,000%-plus gains don't happen by accident! KLA's outperformance directly reflects its niche position in the semiconductor process control market.
The company's electron-beam inspection systems and optical inspection solutions are used to detect and classify semiconductor chip manufacturing defects. KLA accounts for more than half of the semiconductor process control market, making it an essential pillar in the chip-making process.
Beyond this sustainable moat, the wind in KLA's sails is directly linked to the evolution of artificial intelligence. As advanced chips become smaller, defect detection becomes increasingly more important. KLA Corp finds itself as a critical cog in the AI data center infrastructure build-out.
Most people have heard of $TSM TSMC, $NVDA Nvidia, $ASML ASML.But fewer know about and/or talk about KLA $KLAC.Since 2016: FCF/share is up +611%, compounding at +22.9% annually. The stock is up +2,189%.What does KLA actually do?They make the inspection and metrology tools... pic.twitter.com/BYyP51jgja
It also doesn't hurt that this fast-growing process control company has a generous capital-return program. It's increased its dividend for 17 consecutive years and recently announced a $7 billion share repurchase program.
Although KLA's niche market has it positioned for long-term success, there is one variable for skeptics to consider: history.
Every game-changing technology since the advent and proliferation of the internet in the mid-1990s has endured an early innings bubble-bursting event. These bubbles form because investors consistently overestimate the optimization of new technologies. While AI infrastructure demand is off the charts, it'll likely take years for businesses to optimize the AI solutions they're deploying. If history rhymes yet again, an AI bubble will form and burst, potentially weighing on industry leaders like KLA Corp.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Booking Holdings. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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