Stock splits and AI — a match made in heaven. Who’s next?
This has been a year filled with high-profile stock splits. Nvidia‘s (NASDAQ: NVDA) probably takes the cake, but plenty of other big names attracted attention, like Chipotle Mexican Grill, Broadcom, and Walmart.
Companies tend to split their stock when they already have positive momentum, so it’s important to not attribute too much causality here, but much of the time a stock can do extremely well in the year following a split. Investors are smart to pay attention to which companies might be next.
Here are a few artificial intelligence (AI) companies that look ripe for a split.
1. Meta
Meta (META -0.57%) has evolved significantly since the days of “The Facebook.” While the company still operates Facebook — which continues to be the most popular social media platform in the world — it now runs a whole family of social networks used by a combined 3.3 billion people daily. That is an incredible reach, and it’s why the company continues to rake in cash.
Meta reported third-quarter 2024 revenue of $40.6 billion, up 19% year over year. That’s the fifth quarter in a row it has grown revenue by 19% or more. The company has also been cutting costs, and its earnings per share (EPS) are up massively from a year ago. Check out the chart showing the accelerated growth since mid-2023.
META Normalized Diluted EPS (TTM) data by YCharts.
The company has been investing heavily in AI and believes it will start seeing significant returns soon. Behind the scenes, AI is being used to make its advertising business more efficient and effective. In its latest earnings call, CEO Mark Zuckerberg said that there are “a lot of new opportunities to use new AI advances to accelerate our core business that should have strong ROI over the next few years.”
That’s big. The recent growth in earnings is happening while the company is spending aggressively to build out its AI capabilities and is yet to reap the rewards. There is a lot of upside here, and despite this, it remains one of the cheapest stocks among its big tech peers. Take a look at the chart showing as much.
META PE Ratio (Forward) data by YCharts.
At this valuation, Meta looks like a great pick to me. It’s also the only Magnificent Seven stock that has yet to split its stock, and at a current price nearing $600, it would seem likely that Meta may choose to do so soon.
2. ServiceNow
ServiceNow (NOW 0.05%) is one of the companies using AI to deliver real-world value. It’s at the opposite end of the AI chip-makers that have received most of the AI coverage. It leverages AI to help companies streamline their IT and operations.
The company has seen steady growth for years, but that growth has accelerated in the last couple of years as AI technology has come into its own. Revenue has been growing by double digits for years now, and last quarter saw the company deliver nearly 80% year-over-year growth in EPS.
ServiceNow is an innovator in agentic AI — the buzzword for AI that can actually perform tasks and act semi-autonomously. This could be the next big thing in AI. It’s certainly being talked about quite a bit, and you can see why. The amount of efficiency that could be achieved through AI working on basic tasks with limited oversight could be massive.
The only hitch with ServiceNow is its valuation. The company is trading at a forward price-to-earnings ratio (P/E) of 60. That’s a pretty hefty premium and requires the company to continue delivering exceptional growth. Still, if it can deliver that kind of growth consistently, it should be able to overcome the sky-high valuation.
At more than $1,000 per share, ServiceNow is in a perfect position to execute a split. Keep an eye out for any announcements.
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. Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms, Nvidia, and ServiceNow. The Motley Fool has a disclosure policy.
