Investors have witnessed a resurgence in the popularity of stock splits in recent years. This trend has been driven by strong corporate performance, resulting in significant stock price appreciation. Stock splits, while not impacting a company’s intrinsic value, are implemented to keep shares accessible for the average retail investor.
Looking back, the past few years have seen a slew of high-profile stock splits, including those of Amazon, DexCom, Shopify, Alphabet, Tesla, Palo Alto Networks, Monster Beverage, and Celsius Holdings.
Considering the top-performing stocks of last year, it is evident that there may be more stock splits on the horizon in 2024.
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Potential Split: Nvidia
Nvidia (NASDAQ: NVDA) gained fame for its pioneering graphics processing units (GPUs) essential for rendering lifelike images in video games. Over the years, the company has adapted its chips for cloud computing, data center usage, and, most recently, generative artificial intelligence (AI).
Statistics from New Market Research suggest that Nvidia currently dominates approximately 95% of the market for machine learning processors, signaling the company’s strong standing to lead the generative AI segment.
In its fiscal 2024 third quarter (ended Oct. 29), Nvidia boasted record revenue of $18.1 billion, a 206% increase year over year. At the same time, its diluted earnings per share (EPS) surged an astounding 1,274%. Though the comparison is skewed by weak prior-year results, it underscores the company’s promising future.
Nvidia has a history of robust growth. Its stock soared by 239% in 2023, and over the past decade, its revenue skyrocketed by 1,480%, propelling net income up by an impressive 6,190%. Consequently, Nvidia’s stock price surged by more than 13,650%, reaching $531 at Tuesday’s market close.
Despite its exceptional performance, Nvidia maintains a reasonable price-to-earnings-to-growth (PEG) ratio of less than 1, a benchmark for an attractively priced stock.
The company last announced a stock split in May 2021 when its stock traded around $600 per share, just 13% higher than its current price. Given its current trajectory, history indicates that it may not be long before Nvidia announces its next stock split.
Feasible Split: Microsoft
Microsoft (NASDAQ: MSFT) is renowned for its Office suite of productivity tools and the ubiquitous Windows PC operating system. Nevertheless, the company made a significant foray into generative AI last year. After acquiring a large stake in ChatGPT parent OpenAI, Microsoft unveiled Copilot, a set of AI-powered assistants aimed at streamlining tedious, time-consuming tasks. These initiatives marked the beginning of the ongoing AI competition.
The AI Frontier: A Look at Microsoft and Meta Platforms
Microsoft’s AI Leap
Microsoft’s Azure Cloud experienced robust growth in the calendar third quarter, outpacing rivals as it rode the wave of demand for AI tools. The company reported a 13% year-over-year revenue growth for its fiscal 2024 first quarter, while EPS surged by 27%. The impact of the highly-anticipated Copilot, however, is yet to reflect on the financial statements, as it was only made available for general release in November.
Despite this, Microsoft’s prescient AI moves have been pivotal in driving its stock price up by an impressive 57% in 2023. Taking a broader perspective, the past decade has seen Microsoft’s revenue soar by 177%, propelling net income up by a staggering 294%. Such growth has led to a remarkable 817% increase in stock price, currently hovering around $376. With such an enviable history, Microsoft’s forward earnings multiple of 33 seems well-deserved.
Microsoft’s decision to split its stock was a rare occurrence between 1987 and 2003 when it kept the stock price below $175. Fast forward to today, where the stock is trading at an all-time high of over twice that price, suggesting significant growth potential in the AI frontier.
A Meta Comeback
In 2023, Meta Platforms experienced a remarkable resurgence, with a host of catalysts driving a stock surge of 194%. The company’s cost-cutting initiatives, coupled with the recovery of digital advertising from a historic drought, and a strategic focus on AI, collectively propelled Meta’s stock. The third quarter saw Meta’s revenue climb by 23% year over year to $34.1 billion, while EPS surged by an impressive 168%, despite a meager 7.8% growth in digital ad spending over the past year.
Meta’s deep-rooted association with AI has been instrumental in its pivot to capitalize on this expertise, evident in the successful launch of Llama AI and the upcoming Llama 3 release. The company’s Advantage+ AI tools, designed to empower advertisers on its social media platforms, have also been a noteworthy contributor to its success, streamlining and automating ad campaigns while delivering substantial returns.
The decade has seen Meta’s revenue soar by a whopping 1,260%, driving net income up by 1,700%. These impressive figures have translated into a robust stock price gain of 493%, with the stock currently trading at around $357. With an appealing PEG ratio of less than 1, Meta’s association with AI makes a compelling case for a potential stock split in 2024.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. 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. Danny Vena has positions in Alphabet, Amazon, Meta Platforms, Microsoft, Monster Beverage, Nvidia, Shopify, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Celsius, Meta Platforms, Microsoft, Monster Beverage, Nvidia, Palo Alto Networks, Shopify, and Tesla. The Motley Fool recommends DexCom. The Motley Fool has a disclosure policy.
