Two of the world's largest companies completed stock splits last year, an operation that suggests a particular player is doing pretty well. A company generally announces a split after the stock has climbed significantly, reaching a level that may put it out of reach for certain investors.
With a stock split, a company issues more shares to current holders. It doesn't change the total market value of the company because the price of the stock is split proportionately. The value of an investor's holding won't change, just the number of shares they own. And the lower price makes the stock more affordable to a broader range of buyers.
If these particular companies continue to focus on smart growth, their shares could once again take off and reach new highs. Two recent stock-split companies on their way to becoming artificial intelligence (AI) giants could do just that. I'm talking about Alphabet (GOOG 9.96%) (GOOGL 10.22%) and Amazon (AMZN 3.43%).
Both are using AI to improve their services and help clients do the same. Let's take a closer look at these potential AI winners.
1. Alphabet
Alphabet is the company behind something most of us use very regularly: search engine Google. When my daughter asks me a question I can't answer -- and that's pretty often -- I say, "Let's Google it." It's no surprise Google has steadily held onto more than 90% of search market share globally.
But Alphabet isn't just about searching for answers online. The company also owns Google Cloud, a cloud computing business that's been growing revenue in the double digits -- 28% in the second quarter -- and gaining customers big and small. About 60% of the world's 1,000 largest companies use Google Cloud, as do millions of smaller businesses.
So where does AI fit into all this? AI represents a key tool for both of these businesses, one that could keep customers coming back over time. Alphabet is using generative AI to make its search experience and results better and better, such as through its new Search Generative Experience.
Alphabet also relies on the technology to help advertisers find new ways to turn people who click on an ad into potential customers. This is important since Google advertising represented about 78% of Alphabet's total revenue in the quarter.
As for Google Cloud, the business offers clients various AI and machine learning products and services. For example, clients can select tools to test generative AI models or convert text into natural-sounding speech. Google Cloud has even launched generative AI in the field of cybersecurity and now has more than 30,000 companies onboard.
AI can help Google improve its core search offering. It can also help Google Cloud clients better use AI in their businesses. All of this should keep Alphabet customers coming back and drive earnings growth -- and potentially share performance -- over time.
2. Amazon
Amazon is another company many of us rely on. We may flock to the e-commerce site for groceries and general merchandise or tune in to Prime Video to watch Thursday Night Football or a popular movie.
Amazon is a leader in this growth market of e-commerce and also the market leader by far in cloud computing. Importantly, the cloud business -- Amazon Web Services (AWS) -- has generally been Amazon's biggest profit driver. Though economic headwinds hurt Amazon last year, the company otherwise has a solid earnings track record.
AMZN Net Income (Annual) data by YCharts.
Let's talk a bit about AI, an element that could be the growth driver Amazon needs right now.
Amazon has been applying the technology throughout its business for years, using AI to improve efficiency in its fulfillment processes or suggest products that might interest you when you visit the e-commerce site. These efforts help Amazon to better serve its customers and have surely boosted the company's revenue over time.
The recent progress of generative AI -- or the type of AI that helps create new content -- could boost the earnings power of AWS. It's already spurred the business to launch new products and services.
For example, this spring, Amazon introduced Amazon Bedrock, an easy-to-use platform that allows clients to build generative AI-based applications. Through Bedrock, clients can customize foundation models to suit their purposes and deploy them using AWS tools -- and all of this without having to manage infrastructure. Amazon also recently launched Amazon CodeWhisper, an AI-based companion for developers.
These and other new tools make AI accessible and easier for businesses, and that may lift earnings at AWS -- and Amazon -- in the years to come. That's why the gains in Amazon shares prior to its stock split may not be a one-time thing. Amazon, with its focus on AI, may be on its way to another period of top performance.
