In recent months, artificial intelligence (AI) stocks have been a focus of stock-split stocks. This began last year, as Amazon and Alphabet initiated splits when pre-split stock prices exceeded $2,000 per share. Nvidia and Broadcom followed this year when pre-split prices reached four figures.
Knowing this, it may surprise investors that a stock with a much lower price is likely to split soon. Nonetheless, as its growth as an AI stock continues, a split should not only make sense, but also serve its investors well.
The (likely) next AI stock to split
When looking for AI-driven stock splits, investors should look to Microsoft (MSFT 0.25%). Admittedly, at a nominal price barely above $400 per share, this might come as a surprise to investors at first glance. With some AI stocks well above that price, investors might see other names as more logical targets.
However, investors might forget that Microsoft is one of the 30 stocks that make up the Dow Jones Industrial Average. The Dow is a price-weighted index, meaning a stock's high nominal price gives a stock a disproportionate influence over the index.
As of now, Microsoft is the third-most expensive Dow stock, lagging only UnitedHealth and Goldman Sachs. That factor alone likely puts Microsoft in the crosshairs of Dow Jones & Company, the subsidiary that controls the index. Additionally, since a wide swath of the investment community still sees the Dow as a benchmark, Microsoft will likely bow to pressure and split its stock to stay in the index.
It is not just political
Still, it is not just political pressure driving a potential stock split. Grand View Research forecasts the global AI market will grow at a compound annual growth rate (CAGR) of 37% through 2030. Hence, investors should remember that AI-driven growth could take Microsoft stock to the point that a split is necessary.
At the center of its public-facing AI applications is Microsoft Copilot, which represents numerous AI-driven products. This includes GitHub Copilot to help developers write code faster; Copilot 365, which integrates AI with the Microsoft 365 productivity suite; and Dynamics 365, which enhances customer relationship management (CRM) and other functions.
AI is also a key function within Azure, Microsoft's cloud computing platform. Azure AI integrates machine learning functions, pre-built AI models, bot services, and integrations with OpenAI to better serve its customers.
In summary, Microsoft is involved in so many aspects of AI that it might be hard to keep up. Nonetheless, shareholders should remember that success in one or more of these areas can continue pushing Microsoft stock higher.
How AI affects financials
Additionally, since AI touches virtually every part of Microsoft as a company, isolating the effects of AI on Microsoft stock is difficult for the average investor.
Still, in the first quarter of fiscal 2025 (ended Sept. 30), revenue of $66 billion increased 16%. That does not match the aforementioned CAGR for AI. However, Microsoft's market exceeds $3 trillion, a size that makes faster growth rates more difficult to achieve.
Also, operating costs grew by 23% over the same period, due mainly to rising research and development costs. Microsoft and its peers have invested heavily in R&D as they work to stay competitive in the AI space. Amid such spending, Microsoft's net income was $25 billion in fiscal Q1, growing at 11% yearly.
NASDAQ: MSFT
Key Data Points
The increases led to Microsoft stock rising 22% over the last year. While it did not grow as fast as some peers, that growth should continue to take Microsoft's share price higher over time. Also, investors will likely continue to buy shares despite its 34 P/E ratio, further increasing the pressure for a stock split.
Making sense of a stock split
Despite a comparatively lower share price, Microsoft faces more pressure to approve a stock split than most of its peers. The company's inclusion in the price-weighted Dow Jones index is a source of pressure for such a move. Moreover, its role in the fast-growing AI market makes such a rising stock price almost inevitable.
Ultimately, such forces make it likely that Microsoft stock will benefit from a virtuous cycle that drives both higher stock prices and stock splits.
