Split Preparations: Two Artificial Intelligence Stocks Showing Potential Divide
This year has been packed with prominent stock splits. Nvidia (NASDAQ: NVDA) might just be the champ, but other notable names like Chipotle Mexican Grill, Broadcom, and Walmart have also grabbed attention.
Companies usually opt for stock splits when they're already experiencing positive trends, so it's wise not to overemphasize the cause. Sometimes, a stock can perform exceptionally well after a split. Investors should keep an eye out for potential future contenders.
Here are a few promising AI companies that seem ripe for a split.
1. Meta
While it's not the same as "The Facebook" anymore, Meta (META 1.21%) continues to operate Facebook, the world's most popular social media platform. However, it now manages a whole suite of social networks, used by a staggering 3.3 billion people daily. That's an enormous reach, which explains why the company continues to rake in the cash.
Meta reported a revenue of $40.6 billion for the third quarter of 2024, an 19% increase year over year. This is the fifth consecutive quarter of 19% or more revenue growth. The company has also been aggressively cutting costs, leading to a significant boost in Earnings per Share (EPS). Check out the chart highlighting this accelerated growth since mid-2023.
Meta is heavily investing in AI and expects to see significant returns soon. Behind the scenes, AI is being used to optimize its advertising business. During its latest earnings call, CEO Mark Zuckerberg mentioned several new opportunities to leverage AI advances to boost its core business with strong returns over the next few years.
The company's recent earnings growth is happening despite aggressive spending on AI development and without yet reaping the rewards. There's a lot of potential here, and despite this, it remains one of the cheapest stocks among its tech peers. Check out the chart demonstrating this.
At its current valuation, Meta seems like an excellent choice. It's also the only one among the Magnificent Seven companies yet to split its stock, and at a price of nearly $600, it seems probable that Meta may choose to do so soon.
2. ServiceNow
ServiceNow (NOW 1.24%) uses AI to deliver tangible value to businesses. It falls into the opposite category of AI chip-makers that have received most of the AI coverage. It employs AI to enhance IT and operational efficiency within companies.
The company has seen consistent growth for years, but this growth has skyrocketed in the past couple of years as AI technology matures. Revenue has been growing by double digits for years, and the latest quarter saw an almost 80% year-on-year increase in EPS.
ServiceNow is a pioneer in agentic AI, a buzzword for AI capable of performing tasks autonomously. This could be a significant breakthrough in AI. It's indeed a hot topic, and the potential efficiency gains from AI handling routine tasks with minimal oversight are enormous.
The only challenge with ServiceNow is its valuation. The company is trading at a forward P/E ratio (P/E) of 60, a high premium that requires the company to maintain exceptional growth. However, if it can deliver this growth consistently, it should be able to surpass its high valuation.
At over $1,000 per share, ServiceNow is perfectly poised to execute a split. Keep a close eye for any announcements.
After observing Meta's impressive revenue growth and EPS boost due to AI investments, investors might consider the potential impact of a stock split on their earnings. Similarly, ServiceNow's high valuation and continued growth in EPS may make a stock split an appealing strategy for the company to increase its accessibility to a wider investor base. This increased liquidity and potential price decrease could attract more investors, further boosting the company's finance and investing opportunities.
