Anticipated Outcome: It's Likely the Upcoming AI Business to Divide Its Shares
In 2024, stock splits became a significant market trend, with heavyweights like Walmart and Chipotle Mexican Grill joining the fray. Tech giants Nvidia and Broadcom led the charge in the AI sector, executing 10-for-1 stock splits. Why do investors embrace stock splits, despite them not altering fundamental company aspects? The reason is simple: they lower the per-share price, making stocks more accessible to a wider investor base. Moreover, it may signal management confidence in the stock's capacity to surge from its reduced price tag.
While keeping investors on their toes for stock splits, one AI powerhouse exhibits signs of imminent action. This company boasts an astounding 65% annual climb, currently boasting a price tag above $600. My prediction? This high-profile AI player will be the next to announce a split. A clue? This tech giant is the sole member of the "Magnificent Seven" that hasn't undergone a stock split. Get it? I'm referring to the unparalleled Meta Platforms (META 0.24%), owner of Facebook, Messenger, WhatsApp, and Instagram.
Despite being the sole stock-split holdout in the "Magnificent Seven," Meta's dominance of social media (with over 3.2 billion daily users across its apps) has catapulted its revenue and profits into the billions. Moreover, Meta is doubling down on AI, investing heavily in this area. But why the focus on AI? CEO Mark Zuckerberg eyes AI that could facilitate daily activities for Meta's users, from business to leisure. To achieve this goal, Meta developed its large language model (LLM), Llama 4. In the company's latest earnings call, Zuckerberg touted Meta AI's success and Llama's momentum amongst industry peers.
Meta's AI ambitions could translate into multiple growth avenues. First, increasing the time we spend on Meta's apps could entice more advertisers, leading to additional revenue. Second, AI investments might spawn new AI products and services. Lastly, Meta's work in LLMs could establish the company as an AI leader by opening up these technologies to the developer community. In other words, Meta appears to be embarking on a thrilling new growth phase.
So, why the anticipated stock split now? With a share price exceeding $600, Meta could deter some investors. However, valuation appears quite reasonable at 24x forward earnings estimates. The psychological barrier of $1,000 per share could deter investors, even if the price remains reasonable. Moreover, some investors cannot invest in fractional shares, limiting their options with Meta's exorbitant price. A stock split could enhance accessibility by lowering the share price, potentially attracting new buyers.
Meta's AI-driven growth trajectory increases the likelihood of a stock split. While Meta's share price may surge from a decreased price level, a stock split could greatly broaden the investor base. In conclusion, I anticipate Meta to be the next AI company to announce a stock split, providing a potential investment opportunity. Regardless of the split, Meta stands as a tantalizing long-term buy-and-hold prospect for growth investors.
Enrichment Insights:
- Stock splits make shares more affordable and accessible to a broader investor base.
- Companies often see stock splits as a sign of strength, boosting investor confidence.
- By increasing affordability, companies can better compete with others in the same sector.
- Stock splits can be a strategic tool to drive growth by attracting new investors.
Given Meta's current high share price and its potential to deter some investors due to the psychological barrier of $1,000 per share, investing in fractional shares being a limitation for some, a stock split could offer a solution. Lowering the share price through a stock split could enhance accessibility, potentially attracting new buyers and broadening its investor base.
In light of Meta's focus on AI, its AI-driven growth trajectory, and the potential for Meta to become an AI leader by opening up these technologies to the developer community, a stock split could strategically drive growth by attracting more investors interested in the AI sector.
