Nvidia (NASDAQ: NVDA) is the latest high-flying tech stock to implement a stock split, but it won’t be the last.
Nvidia’s stock price rose as much as 550% from early 2023 to when it announced its 10-for-1 stock split on May 22. That growth was fueled by a rapid increase in demand for generative artificial intelligence (AI). Nvidia’s GPUs play a crucial role in the development of generative AI applications because they are extremely efficient at training large language models.
Growing interest in AI has prevented Nvidia from keeping up with demand for its GPUs. Prices for its chips soared, along with gross margin and profits. Investors who saw the potential of the current trend did well by investing in Nvidia.
A stock split does not change the underlying fundamentals of the company or the shares. It simply divides the company into smaller pieces. That said, it can have practical applications. A lower share price is more attractive to retail investors who may be put off by a four-figure price tag. It also makes stock-based compensation easier for the company to manage. Stock splits can also signal management’s confidence that the stock is currently priced appropriately and they expect the price to continue to rise. If management believes that shares are too expensive and will eventually decline in value, a stock split would not be necessary.
After AI boosted Nvidia’s stock to the point where a stock split made sense, two other AI leaders could be considering a stock split in the near future.
1. Metaplatforms
Metaplatforms (NASDAQ: META) is best known for its social media apps Facebook, Instagram, Messenger and WhatsApp. Together, these four serve approximately 4 billion monthly users.
Behind the scenes, however, artificial intelligence has been a major focus for the company for over a decade. AI powers the recommendation algorithms that determine what content and ads users see and when they see them. In recent years, Meta has ramped up its AI investments. During the company’s first-quarter earnings call, CEO Mark Zuckerberg said, “We’re in a place where we’ve shown we can build leading models and be the leading AI company in the world.”
Meta’s efforts have already yielded good results across its family of apps. Revenue rose 27% year-on-year in the first quarter, while net profit rose 117%. That said, many investors are concerned about the level of spending required to build and train Meta’s AI models. The company plans to spend $35 billion to $40 billion on capital expenditures this year, with net expenses approaching $100 billion. It’s certainly an investment phase for Meta, but historically it has been able to earn big returns on its investments over time.
Despite these concerns, investors continue to pile into the stocks. Meta’s share price has almost quadrupled since the start of 2023, reaching an all-time high earlier this year. With stock prices hovering around $500, it could be time for the first-ever stock split.
Management has expressed its confidence in the stock with a large-scale share buyback program. And with shares trading at around 24 times forward earnings, it’s one of the cheaper stocks among the ‘Magnificent Seven’ in terms of valuation.
2.Microsoft
Microsoft (NASDAQ: MSFT) strengthened its position as an AI leader when it added $10 billion to its OpenAI investment in early 2023. This move made its public cloud computing platform, Azure, the top choice for developers looking to capitalize on the AI ​​trend.
The company has leaned heavily on AI. The Azure OpenAI Service drives new customers and migrations from competitors, helping it gain share in the cloud computing market. It has also managed to roll out new services, giving existing customers the opportunity to spend more on the platform. Overall, Azure revenue grew 31% year over year during the company’s third quarter (ended in March).
Microsoft is also injecting AI capabilities into its enterprise software business, including the Office productivity suite and Dynamics sales and marketing software. The AI ​​feature is called Copilot, which can help users improve productivity and creativity across the various software suites. Copilot has seen strong adoption among existing customers, and the Copilot Studio allows companies to take Microsoft’s AI foundations and apply them to specific applications.
Microsoft stock prices have risen 80% since the start of 2023, with shares trading at over $400 per share. It’s been more than two decades since the company’s last stock split. After the 2003 split, the shares traded for less than $25 each. It might be time for a new one.
With shares valued at about 31 times forward earnings estimates, Microsoft trades at a premium to the overall market. However, as it gains market share in the valuable cloud computing space and remains a dominant force in enterprise software, it should be able to continue to expand its revenue and operating margins and grow toward that valuation.
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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Adam Levy has positions in Meta Platforms and Microsoft. The Motley Fool holds positions in and recommends Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
These two artificial intelligence (AI) innovators could be the next stock split after Nvidia’s big announcement was originally published by The Motley Fool
