Stock splits, which occur when a company divides its existing shares into multiple shares, effectively increasing the outstanding shares while maintaining the same market capitalization, have been all the rage on Wall Street over the past few years, with companies like Amazon, Nvidia, and Tesla participating in the frenzy.
While stock splits don't impact a company's valuation, they can serve a purpose, including attracting more retail investors to purchase shares at a reduced price, which, in theory, could help boost demand for the stock.
One sector, artificial intelligence (AI), which has experienced rising stock prices, is ripe with candidates for stock splits, so let's examine four and briefly discuss their long-term outlook.
1. AppLovin
AppLovin (APP +0.32%) provides technology and tools to help mobile app developers effectively market, monetize, and grow their apps. The company utilizes AI to optimize ad placements and maximize revenue for developers.
As of this writing, AppLovin stock trades for $332 per share, making its market capitalization around $112 billion. Notably, the company has never split its stock since going public in 2021 but is up more than 400% since then.
NASDAQ: APP
Key Data Points
Digging into the numbers, it's easy to see why its stock has soared. In the third quarter of 2024, AppLovin generated $1.2 billion in revenue, translating to $545 billion in free cash flow, up 39% and 182% year over year, respectively. As a result of the strong quarter, management announced a $2 billion increase to its share repurchase program, which now totals $2.3 billion. Over the past three years, AppLovin's outstanding share count has decreased by 11%, demonstrating management's commitment to increasing existing shareholders' ownership stake.
2. ASML Holding
ASML Holding (ASML 3.96%) manufactures advanced photolithography machines essential for producing high-performance microchips used in AI technologies while also leveraging AI to optimize its own operations. The stock, currently trading at $750 per share and a market capitalization of $304 billion, has gone through four stock splits since its initial public offering (IPO) in 1997.
NASDAQ: ASML
Key Data Points
The first three stock splits in ASML's history were forward splits, but its most recent split in 2007 was an 8-for-9 reverse split. As a result, an investor who purchased one share at ASML's IPO in 1997 would own 10.67 shares today.
As for ASML's recent results, the company posted $8.2 billion in revenue and $2.3 billion in net income during Q3 2024, representing a 13.1% and 10.7% increase, respectively. Moreover, the company has a strong balance sheet, with $326.5 million in net cash, allowing management to comfortably pay a consistent dividend since 2013. The company pays a quarterly dividend in euros, so it can fluctuate for American investors based on the exchange rate, with its most recent dividend totaling $1.64. Nonetheless, ASML has a relatively low payout ratio of 35.2%, which management has announced it intends to grow over time.
3. Meta Platforms
Meta Platforms (META 0.29%), formerly Facebook, has never split its stock since its 2012 IPO. Over the past year, the stock has surged more than 60% and trades at $615 per share with a market capitalization of nearly $1.6 trillion.
NASDAQ: META
Key Data Points
Meta, best known as a social media company driven by advertising revenue, has harnessed AI to improve its services. According to the company, its AI tools empower advertisers to create more effective campaigns. For instance, businesses using its image generation technology achieved a 7% boost in conversions.
In its most recent quarter, Meta posted $40.6 billion in revenue and $15.7 billion in net income, reflecting year-over-year growth of 19% and 35%, respectively. With $42.1 billion in net cash, the company has increasingly focused on returning capital to shareholders. In 2024, Meta initiated its first quarterly dividend of $0.50 per share, yielding 0.32%, and it has reduced its outstanding shares by 7.3% over the past three years.
Looking ahead, Meta plans to invest heavily in AI. Management expects capital expenditures to exceed $40 billion in 2025, underscoring AI's central role in the company's growth strategy.
4. Microsoft
Microsoft (MSFT +0.86%) rounds out this list as the company with the largest investment in AI. Over the past 12 months, it spent $49.5 billion on capital expenditures and has invested an estimated $13.8 billion in OpenAI since 2019. CEO Satya Nadella says AI is driving a "fundamental change in the business applications market as customers shift from legacy apps to AI-first business processes."
NASDAQ: MSFT
Key Data Points
Since going public in 1986, Microsoft has split its stock nine times, with the most recent 2-for-1 split occurring in 2003. A single share purchased at its IPO would now represent 288 shares.
In its most recent quarter, Microsoft reported $65.6 billion in revenue and $24.7 billion in net income, reflecting year-over-year growth of 16% and 10.7%, respectively. The company boasts a robust balance sheet with $33.3 billion in net cash, supporting 20 consecutive years of dividend increases. Microsoft currently pays a quarterly dividend of $0.83, yielding 0.78% annually.
Are these potential stock-split candidates worth buying?
It's worth noting that none of these four market-beating stocks have announced a stock split. While the prospect of a split can generate excitement, it's rarely a compelling reason to invest.
Long-term stock success depends on a company's financial performance, particularly its ability to achieve sustained growth in revenue and profits. These companies have already demonstrated how AI drives substantial gains in both, making them excellent choices for any long-term investor's portfolio.
