Predicting the Next AI Stock Split: Meta Platforms

The rise of artificial intelligence (AI) stocks has captured the attention of investors in recent years. A notable trend among successful companies has been to split their stocks, making it easier for more individuals to invest. This has been observed with chip manufacturers like Nvidia and Broadcom, which initiated stock splits earlier this year after seeing their share prices soar to impressive heights.

When a company decides to split its stock, they essentially lower the share price by proportionally increasing the number of shares available. The company's overall value does not change; it is akin to dividing a cake into smaller pieces—the cake remains the same size.

Nonetheless, investors are generally optimistic about stock splits. For instance, Nvidia has seen a remarkable 45% increase in its share price since announcing its split in May, while Broadcom has experienced a 20% rise since making a similar announcement for its stock split in June. This raises the question: which AI company is likely to be the next to split its stock?

Meta Platforms: The Leading Candidate for a Stock Split

Among the various contenders, social media giant Meta Platforms (formerly Facebook) appears to be the most likely candidate for a stock split. The case for Meta is compelling when analyzing the company's current share price, which sits at around $575, close to its highest value of slightly over $600.

Despite this high market price, Meta's stock is not necessarily overvalued; it has a forward price-to-earnings (P/E) ratio of 27, with analysts forecasting a 19% growth in earnings annually over the next three to five years. The price/earnings-to-growth (PEG) ratio of 1.4 indicates that the stock could appreciate steadily over time while remaining reasonably valued.

However, at nearly $600 per share, it's challenging for many individual investors to purchase a significant amount of Meta stock. For example, buying just ten shares requires an investment of almost $6,000, a daunting figure for many average investors. A stock split could lower this barrier, allowing more investors to acquire shares easily.

Employee Benefits from a Stock Split

It is important to note that stock splits can also benefit company employees, particularly in the tech sector, where stock options are often part of compensation packages. Long-standing employees may have accumulated considerable stock, which can be difficult to sell in high increments if each share is valued around $600. A split would provide greater liquidity for these employees, making it easier for them to sell their stock without needing to wait long periods to save enough funds.

Since its initial public offering (IPO) in 2012, Meta has never initiated a stock split, although its share price has soared from the original IPO price of $38. As the stock continues to climb, employees would likely appreciate the flexibility a stock split would afford them.

Market Momentum Supports the Case for a Split

The potential for a stock split also carries a significant message to the market. A stock split often signals a positive outlook and invites new investors to participate, provided the timing is right.

Take Nvidia as an example again: the company's stock saw an impressive rise of nearly 550% from the beginning of 2023 until the split announcement on May 22, 2024. This upward momentum suggests a thriving business, making it suitable for company leadership to issue a reassuring announcement about the split. It sends the message: "We are succeeding, and we welcome more investors!"

Conversely, consider a company like ASML Holding. While its share price exceeds that of Meta, ASML is experiencing difficulty, with shares falling over 30% from peak values. Initiating a stock split during a challenging time may convey desperation rather than confidence, possibly deterring potential buyers.

Meta Platforms has posted a remarkable increase of more than 370% since January 2023 and is approaching its all-time high. The numbers support the rationale for a stock split, with a favorable market context to deliver a strong and positive message. Therefore, it's my confident prediction that Meta may soon join the ranks of companies executing an AI stock split, making it a frontrunner in this arena.

AI, Stocks, Meta