Prediction: This Will Be the Next AI Company to Split Its Stock
5 hours ago
Stock splits were a major market theme in 2024, with some of the world's biggest names joining the list. Companies across sectors, from Walmart to Chipotle Mexican Grill, launched such operations last year. And Nvidia and Broadcom led the wave in the artificial intelligence (AI) industry, each completing a 10-for-1 stock split.
Why do investors love stock splits? Even though they don't change anything fundamental about a company, they do lower the per-share price, making the stock more accessible to a wider range of investors. And the move also could be seen as a sign of confidence from management, with the idea that the stock has what it takes to rise from its new lower price.
So, it's logical that investors are always on the lookout for stock splits, especially when a very successful company's share price has soared to high levels. And one particular AI company right now is looking ripe for a split. The stock climbed 65% last year and today trades for more than $600. My prediction is this well-known company will be the next AI player to announce a split.
Image source: Getty Images.
Before I give away the name of this company, I'll offer you one more clue about its identity. This tech giant is the only member of the "Magnificent Seven" --the stocks that drove last year's market gains -- that never has launched a stock split. I'm talking about Meta Platforms(NASDAQ: META), owner of social media platforms Facebook, Messenger, WhatsApp, and Instagram.
Thanks to its social media dominance -- more than 3.2 billion people use at least one of its apps daily -- Meta has seen its revenue and profit climb into the billions of dollars. And its shares have followed the upward path, today trading near a record high.
Meta generates most of its revenue through advertising as advertisers seek to reach us where they know they'll find us -- using one of the company's apps. But Meta has aggressively expanded into AI, making it the company's biggest area of investment last year -- and Meta has suggested it will increase AI investments this year too.
CEO Mark Zuckerberg has said he's interested in developing AIs that all Meta users may rely on for whatever is important to them -- from business to leisure activities. To get there, the company developed its own large language model (LLM) and is now training the latest version, Llama 4. In the most recent earnings call, Zuckerberg said Meta's seeing fast adoption of the recently released Meta AI -- the company's first AI assistant -- and Llama is "quickly becoming a standard across the industry."
Meta can win in AI a few different ways. First, the more time we spend on Meta's apps -- thanks to potential AI tools and features -- the more advertisers will want to invest in reaching us there. That equals more revenue for Meta.
Second, Meta's AI investments could lead to other AI products and services. Finally, Meta's work in LLMs and making them available to the developer community could position the company to stand out as an AI leader. So Meta could be heading toward an exciting new era of growth.
Now let's consider my prediction. Why is now a good time for Meta to split its stock? At more than $600, Meta may scare off some investors -- even though valuation looks very reasonable at 24x forward earnings estimates. The level of $1,000 per share represents a psychological barrier for some investors, who may consider the stock as pricey regardless of its valuation. So, companies that start approaching this level might think about launching an operation to avoid this problem.
Also, some investors don't have access to fractional shares -- and they may not have the budget to invest in Meta at today's level. So a stock split, lowering the per-share price by issuing more shares to current holders, could open up the investing opportunity to these potential buyers.
Finally, as mentioned, Meta should see more growth ahead thanks to its investment in the area of AI -- so the stock has what it takes to climb from a new, lower price point.
All this supports the idea of announcing a stock split, and that's why I predict Meta will be the next AI player to make such a move. And the good news is, even if it doesn't, Meta still represents a solid long-term buy-and-hold candidate for growth investors.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Meta Platforms, Nvidia, and Walmart. The Motley Fool recommends Broadcom and recommends the following options: short December 2024 $54 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
