One of the most intriguing developments for investors over the past few years has been the return to popularity of stock splits. By and large, these moves have come on the heels of strong business performance, leading to equally strong stock price appreciation. Since stock splits don’t have any effect on the underlying value of the business, the primary reason cited by companies is the desire to keep their shares affordable for the average retail investor.
A look back at the past couple of years helps highlight this trend as numerous high-profile companies split their shares. These included:
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Amazon: 20-for-1 split June 3, 2022
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DexCom: 4-for-1 split June 10, 2022
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Shopify: 10-for-1 split June 28, 2022
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Alphabet: 20-for-1 split July 15, 2022
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Tesla: 3-for-1 split Aug. 24, 2022
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Palo Alto Networks: 3-for-1 split Sept. 13, 2022
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Monster Beverage: 2-for-1 split March 27, 2023
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Celsius Holdings: 3-for-1 split Nov. 15, 2023
A look at a few of the top-performing stocks of last year suggests there could be more stock splits on the docket in 2024.
1. Nvidia
Nvidia (NASDAQ: NVDA) is best known for pioneering the graphics processing units (GPUs) that render lifelike images in video games. Over the years, the company has adapted its chips to provide the computational horsepower necessary for cloud computing and data center uses and, most recently, generative artificial intelligence (AI).
According to data compiled by New Market Research, Nvidia currently controls roughly 95% of the market for processors used in machine learning — an earlier branch of AI. This suggests the company is well positioned to lead the generative AI market as well.
Recent financial results seem to support that view. For its fiscal 2024 third quarter (ended Oct. 29), Nvidia delivered record revenue of $18.1 billion, up 206% year over year, while its diluted earnings per share (EPS) of $3.71 surged 1,274%. Tepid results from the prior year skewed the comparison, but it helps illustrate the long runway ahead.
Nvidia has a long history of impressive growth, but excitement regarding its AI-fueled results drove the stock up 239% in 2023. Its performance is even more pronounced when considered over the past 10 years. Revenue has soared 1,480%, driving net income up 6,190%. This growth has fueled Nvidia’s surging stock price, which is up more than 13,650%, with a price of $531 as of Tuesday’s market close. Despite its performance, Nvidia still trades for a reasonable price-to-earnings-to-growth (PEG) ratio of less than 1 — the benchmark for an inexpensive stock.
The company’s most recent stock split was announced in May 2021 when the stock was trading at about $600 per share, just 13% above its current price. If things continue along the current trajectory — and history is any indication — it won’t be long before Nvidia announces its next stock split.
2. Microsoft
Microsoft (NASDAQ: MSFT) is best known for its Office suite of productivity tools and ubiquitous Windows PC operating system. Last year, however, the company made a big splash in the field of generative AI. After taking a big stake in ChatGPT parent OpenAI, Microsoft released Copilot, a suite of AI-infused assistants designed to streamline mundane, time-consuming tasks. These moves kicked off the current AI arms race.
Strong demand for Microsoft’s AI tools helped kick-start growth for Azure Cloud, its “Big Three” cloud infrastructure service. Not only did growth outpace its rivals in the calendar third quarter, but Microsoft also attributed three percentage points of that growth directly to demand for AI.
For its fiscal 2024 first quarter (ended Sept. 30), Microsoft’s revenue grew 13% year over year, while EPS climbed 27%. However, Copilot wasn’t made available for general release until November, which means the impact hasn’t yet hit the financial statements.
Microsoft has a long, distinguished track record of enviable growth, but the company’s prescient AI moves helped drive the stock price up 57% in 2023. The results are even more compelling if we take a step back. Over the past decade, revenue has grown 177%, driving net income up 294%. This has pushed Microsoft’s stock price higher, up nearly 817%, with a price of about $376 as of Tuesday’s market close. The stock is selling for 33 times forward earnings but, considering its history, deserves a slight premium.
The company conducted nine stock splits between 1987 and 2003, rarely letting its stock price exceed $175. While Microsoft hasn’t split its shares since 2003, the stock is now trading at a new all-time high of more than twice that price. And the company has only just scratched the surface of its AI opportunity, which suggests more stock price gains are ahead.
Microsoft hasn’t indicated any plans for a stock split, but given its robust growth, this may be the year it joins its tech peers in splitting its high-priced shares.
3. Meta Platforms
2023 was a banner year for Meta Platforms (NASDAQ: META), with a number of catalysts helping lift the stock. The company’s cost-cutting campaign showed dramatic results, digital advertising began to recover from its historic drought, and AI went viral. Each of these factors helped Meta regain its footing, which sent its stock up 194%.
Meta’s long history with AI helped the company pivot to capitalize on that expertise. Meta quickly developed Llama AI, which was released on all the major cloud services — for a fee. Llama AI 2 was introduced late last year, and rumors suggest Llama 3 will debut in early 2024.
In the third quarter, Meta’s revenue of $34.1 billion climbed 23% year over year, while its EPS of $4.39 surged 168% — even as digital ad spending grew just 7.8% last year. As ad spending ramps back up, Meta’s growth will get a boost.
Then there’s Advantage+, AI tools designed to empower advertisers on Meta’s social media platforms. It has quickly become “one of the fastest-growing ad products” in Meta’s history. A recent trial generated a 35% increase in return on ad spending and a 58% decrease in incremental costs per purchase. By streamlining and automating ad campaigns, Meta is simplifying the process, making it more profitable, and attracting more advertisers.
Meta’s growth last year was notable, but the past decade has been even more impressive. Revenue has grown by 1,260%, while net income surged 1,700%. This has fueled Meta’s robust stock price gains of 493%, with the stock price of roughly $357 as of Tuesday’s market close — within 6% of a new all-time high. Not bad, considering Meta’s stock is selling for a PEG ratio of less than 1.
Given its history of consistent growth and its ties to AI, 2024 could be the year Meta joins its big tech peers in conducting a stock split.
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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.
Stock-Split Watch: 3 Red-Hot Tech Stocks That Could Split Their Shares in 2024 was originally published by The Motley Fool
Source: finance.yahoo.com