Prognostication: This Artificial Intelligence corporation is poised to follow in the footsteps of Nvidia, Alphabet, Tesla, Amazon, Apple, and Broadcom, potentially becoming the next company to see a trillion-dollar stock split.
In the current market landscape, nine publicly traded companies boast a staggering market cap of at least a trillion dollars. As of January 6th's intraday trading, these members of the prestigious trillion-dollar club are ranked by market cap in descending order:
- Apple: $3.7 trillion
- Nvidia: $3.7 trillion
- Microsoft: $3.2 trillion
- Alphabet: $2.4 trillion
- Amazon: $2.4 trillion
- Meta Platforms: $1.6 trillion
- Tesla: $1.3 trillion
- Taiwan Semiconductor Manufacturing: $1.1 trillion
- Broadcom: $1.1 trillion
It's worth noting that Apple, Nvidia, Alphabet, Amazon, Tesla, and Broadcom have all executed stock splits in recent years. The commonality among these companies is their groundbreaking roles in the artificial intelligence (AI) revolution, coupled with substantial gains in their stock prices before the splits.
During the previous year, Meta Platforms' (META 1.11%) shares ingeniously ascended by 76%, surpassing the Nasdaq Composite's and nearly tripling the S&P 500's returns. Given Meta's impressive growth and substantial AI ambitions, investors have pondered the possibility that the tech titan will soon join the ranks of its peers by dividing its stock.
Is Meta Setting Its Sights on a Stock Split?
The graph below highlights the stock splits of the aforementioned trillion-dollar companies, with Meta Platforms conspicuously absent. As demonstrated by market trends, prominent companies often experience pronounced and prolonged gains prior to splitting their stock. This pattern is evident in the graph, as each company's stock displayed noteworthy gains leading up to the split.
Given Meta's lack of a stock split thus far, coupled with its burgeoning AI initiatives, some analysts posit that the company is poised for a split soon.
How Might a Stock Split Impact Meta's Investors?
It's crucial to understand that the total valuation of a company remains unaltered during a stock split. The number of shares issued and the stock price change proportionally to one another. For instance, a 5-for-1 split would increase the total number of shares by five and decrease the price per share by a factor of five, maintaining the company's market cap.
Despite the lack of a change in overall valuation, stock splits can still offer benefits to investors. Increased affordability of the shares may draw in more investors, and the lower share price could contribute to a surge in buying, potentially boosting the share price further.
Although price data alone should not be used to determine a stock's undervaluation or overvaluation, many investors deem Meta's current price of approximately $620 as excessive. Moreover, retail investors – particularly those who feel they've missed out on Meta's price action – may view the shares as prohibitively pricey. Should Meta opt to split its stock, the lower share price could attract more retail investors, possibly sparking renewed enthusiasm for the company amidst daunting competition in the AI sphere.
The Case for Investing in Meta, Regardless of a Split
Meta's forward price-to-earnings (P/E) ratio is somewhat comparable to that of the average S&P 500's forward P/E ratio, hinting that investors might view an investment in the company as equivalent to an investment in our overall markets.
However, I firmly believe that investors have yet to fully acknowledge Meta's AI aspirations and, consequently, have not yet assigned it a premium valuation. In fact, Meta's current valuation may indicate a lack of enthusiasm among investors regarding the company's abilities in AI.
Despite the short-term costs associated with Meta's aggressive AI infrastructure investments in chips, hardware, and more, I consider these as necessary steps for the company to remain a formidable competitor in the AI landscape. Consequently, Meta's stock remains an attractive option for investors with a long-term outlook, regardless of a potential stock split.
With Meta generating impressive returns and exhibiting a positive long-term growth trajectory, now might be the ideal moment to capitalize on its current price action.
- In the realm of finance and investing, the trillion-dollar club, comprising companies with a market cap of at least a trillion dollars, has seen significant growth, particularly in the tech sector.
- Meta Platforms' overvalued shares have drawn the attention of investors and analysts, leading to speculations about a potential stock split to make the shares more affordable and potentially attract more investors.
- Pioneering companies like Apple, Nvidia, and Tesla have adopted stock splits in recent years, demonstrating a pattern of pronounced and prolonged gains before the splits, which could suggest Meta's impending stock split.
- Despite the lack of a stock split, Meta's AI ambitions and substantial growth make it an attractive investment opportunity, offering potential returns for investors with a long-term outlook, regardless of a potential stock split.
