Barron's Streetwise Podcast Summary

Episode: Stock Splits + Semis
Host: Jack Howe
Date: February 14, 2025

Episode Overview

This episode focuses on two core themes:

1. The current wave of stock splits—why they're back in vogue, their impact on returns, and whether chasing them is a sound investment strategy.
2. The state of the semiconductor (semi) sector, with insights from analyst Mehdi Hosseini (Susquehanna International Group). He discusses a coming peak in compute spending, a shift toward networking, and what it all means for investors—especially those eyeing AI-driven growth.

Key Discussion Points & Insights

1. Understanding Stock Splits: Trends, Myths, and Real Returns

• How Stock Splits Work
  • Companies split shares to reduce their price per share, often to make them appear more accessible to investors.
• Common Misconceptions About Share Price and Value
  • People often confuse a higher share price with a better company, but prices are arbitrary and affected by splits and the number of shares outstanding.
• "Buy Low, Sell High" – A Critique
  • Jack Howe critiques this old maxim as both unhelpful and unsound, noting it’s hard to know what’s “low” or “high,” and index investors succeed by simply buying and holding.
• Recent Resurgence in Stock Splits
  • 17 split announcements in S&P 500 last year—the most since 2013, but still far below the peaks of the dot-com era (e.g., 364 splits in five years pre-2000).
• Why Splits Are Coming Back
  • Modern trading allows for fractional shares, making nominal prices less important.
  • Despite splits not changing fundamentals, split stocks have outperformed:
    • Since 1980, splitters return 25% on average in the year after their split, vs. 12% for the market.
    • 2024 splitters returned an average of 17% in the six months post-announcement.
• Who Might Split Next?
  • BofA analysis: leading split candidates are Netflix, Fair Isaac, Eli Lilly, Meta Platforms, and Goldman Sachs—companies with long price run-ups that mirror behaviors of prior splitters.

Quote:

• "Splitting your shares into more shares, that should not make your stock price go up. But if it is making stock prices go up all around you, you maybe you're going to do it."
  — Jack Howe [08:44]

Memorable Anecdote & Tone:

• Jack pokes fun at meme coins (“Gigachad”) and floats "Giggle Chad" as a not-very-serious investment idea, adding humor and market commentary.

2. Semiconductors & the AI Boom: What's Next? (With Mehdi Hosseini)

[12:36–27:44] Main Semi Discussion

a. Sector Overview and Analyst Approach

• Mehdi covers the entire semiconductor supply chain—memory, manufacturing (foundries), IP companies, and OEMs—connecting dots between subsectors for early warning of trends.
• He maintains a bearish outlook on Super Micro, a pick previously discussed on the show.

Quote:

• "The beauty of covering semiconductors or electronics hardware is nobody can forecast end market demand. It's always a black box."
  — Mehdi Hosseini [00:24], [15:33]

b. Peak Compute Spending and Shifting Investment

• Cloud spending on compute is about to peak by mid-2025—not necessarily a negative, but signals a new cycle.
• After peaks, expect a "digestion" period as companies look for ROI from prior AI infrastructure investments.
• The spending focus will shift from compute (chips, servers) to networking (fiber, interconnection tech).

Quote:

• "If the past few years has been about investment in compute, I think over the next 12 to 18 months the focus will be on networking."
  — Mehdi Hosseini [16:55]

c. Networking and Fiber: The Next Winners

• Top picks:
  • Keysight (instrumentation for fiber networks)
  • Corning (fiber manufacturer)
  • Tower Semiconductor (specialty foundry for silicon photonics)
• Transition from copper to fiber/silicon photonics brings faster transmission and lower heat, reducing the need for expensive cooling.

Quote:

• “If you replace copper with silicon photonics, you have a dramatic reduction in the heat dissipation. So you can just use air cooling.”
  — Mehdi Hosseini [20:32]

d. Implications for Index Investors

• The SOX (Philly Semiconductor Index) trades at double its historical premium to the S&P 500.
• A peak in compute spending could trigger a significant correction, and investors in broad index funds (heavily weighted toward AI/compute names) should beware.

Quote:

• "Yeah, some of these big indices that have a significant exposure to AI would see a sell off. And when there is a panic, everybody sells. Everything is very typical."
  — Mehdi Hosseini [21:53]

e. AI's Transformative Power Will Take Time

• The most surprising thing about AI will be that its "killer apps" take longer to emerge, and instead we’ll see many minor applications that cumulatively boost productivity.
• The impact of AI on daily life and the market may take as long as the broader impact of the internet did—a matter of decades, not years.

Quote:

• "The application that would lead to a scaling of AI is going to take longer to develop … it’s not going to be as revolutionary as iPhone was to the download of apps. It may be smaller applications."
  — Mehdi Hosseini [27:44]

Notable Quotes & Timestamps

• On stock splits and investing wisdom:
  • "Buy often and ideally hold until it's someone else's problem because either you're dead or you're rich enough to give it away. That's not very pithy." — Jack Howe [05:04]
• On meme coins:
  • "Gigachad is up thousands of percentage points over the past year. It has a market value of hundreds of millions of dollars... There’s also a picture of a guy with a beard on the website and there's phrases like, 'I don’t care, I win.'" — Jack Howe [09:35]
• On cloud/AI spending inflection:
  • “Our last analysis suggests that the cloud spend, despite all the hype of the past two weeks, the cloud spend in terms of the year over year change in a quarterly spend should peak by middle of 25.” — Mehdi Hosseini [14:24]
• On panic selling:
  • "When this peaking happens, investors are always surprised and they always panic. And you have a correction. And I think this time could prove to be we could see the same kind of reaction from investors." — Mehdi Hosseini [21:53]

Segment Timestamps

• Stock Split Segment:
  • Introduction & explainer: [00:34–09:57]
  • Historical performance & current environment: [04:50–09:45]
• Semiconductors & AI Segment (with Mehdi Hosseini):
  • Introduction to sector and trends: [12:36–15:33]
  • The coming 'peak' and implications: [14:24–18:13]
  • Picking the new winners: [18:13–20:32]
  • Index implications and investor advice: [21:09–24:57]
  • Long-term AI outlook: [24:57–27:44]

Summary Takeaways

• Stock splits are back, but fundamentals still matter more than arbitrary prices. Chasing splits is a risky, gimmicky strategy, even though splits have historically led to outsized returns.
• AI and semiconductor investment is at a crossroads—compute spending is peaking, and growth is shifting toward networking and interconnection.
• Caution is warranted for index investors heavily exposed to AI/compute names, given rich valuations and potential for volatility.
• AI’s market and societal impact will unveil gradually—expect many small, cumulative improvements rather than a single revolutionary breakthrough.

Tone:
Conversational, slightly irreverent, and humorous—Jack Howe intersperses serious financial research with playful jabs and relatable analogies, keeping the episode lively yet informative. Mehdi Hosseini contributes measured, big-picture analysis with a focus on logical, data-driven insight.