Though artificial intelligence (AI) is the hottest thing since sliced bread on Wall Street, it's not the only trend that's captivated the attention and capital of investors. Euphoria surrounding stock splits has also played a key role in sending the market's major indexes higher.
A stock split is a tool publicly traded companies have available to cosmetically alter their share price and outstanding share count by the same factor. These changes are superficial in the sense that they don't impact a company's market cap or its operating performance.
Image source: Getty Images.
While a split can increase or decrease a company's share price, investors approach these actions very differently. Reverse splits, which are designed to increase the share price, are usually shied away from by investors. This type of split is typically being undertaken by struggling businesses that are attempting to avoid delisting from a major stock exchange.
On the other hand, investors fancy public companies announcing and completing forward splits. If a company has to reduce its share price to make it more nominally affordable for everyday investors who can't buy fractional shares with their broker, it must be doing something right. Forward stock-split stocks are usually out-innovating their competition and firing on all cylinders from an operating standpoint.
More importantly, companies enacting forward splits have a rich history of outperforming the benchmark S&P 500 in the 12 months following their split announcement. This is why investors are always on the lookout for the next blockbuster stock-split stock.
Although nothing is set in stone, the following three magnificent businesses check all the right boxes to become Wall Street's next stock-split stock within the next 12 months.
NASDAQ: META
Key Data Points
Meta Platforms
There's more to picking out Wall Street's next logical stock split than a high share price. Specifically, meaningful retail investor ownership is a necessity to spurring a company's board of directors into action. If institutional investors hold 85% or more of a company's outstanding shares, there's not much of an incentive to announce a forward split.
The first blockbuster company that looks primed for a split in the not-too-distant future, and that has a notable percentage of retail investor ownership, is social media titan Meta Platforms (META 1.06%). Meta is the only member of the "Magnificent Seven" that's never completed a split, and has approximately 28% of its shares currently held by everyday investors. With its share price hovering in the mid-$700s, there's absolutely a catalyst for a forward split.
More importantly, the foundation has been laid for Meta stock to head significantly higher. While it's undeniably an AI play, nearly 98% of its revenue comes from advertising on its social media platforms. Meta is the parent of Facebook, Instagram, WhatsApp, Threads, and Facebook Messenger, and was responsible for courting an average of 3.48 billion users daily in the month of June. No other social media company comes close to these figures, which is why Meta sports such phenomenal ad-pricing power.
Meta Platforms is already benefiting from the incorporation of AI into its advertising platforms. Giving businesses access to generative AI solutions allows them to craft unique messages to users with the hope of improving click-through rates. Artificial intelligence is also the tool that's expected to eventually accelerate growth for the metaverse -- the 3D virtual world where people can interact with each other and their surroundings.
Lastly, Meta boasts north of $47 billion in combined cash and cash equivalents, and is pacing more than $99 billion in cash flow from operations in 2025. Its cash gives it the luxury of taking risks and slow-stepping the rollout of new platforms.
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Goldman Sachs
Investment banking and wealth management juggernaut Goldman Sachs (GS 1.20%) is the second high-profile stock that appears primed for a split at some point within the next 12 months. Similar to Meta, Goldman Sachs hasn't conducted a split since becoming a public company.
Nearly 31% of Goldman Sachs' shares are held by noninstitutional investors, and its stock hit an all-time closing high of almost $764 per share on Sept. 9. At this price, it's not hard to imagine that some investors without access to fractional-share purchases may be locked out establishing a position or adding to their existing stake.
The only thing that keeps Goldman Sachs from being a slam-dunk stock-split candidate is its membership in the Dow Jones Industrial Average (^DJI 0.05%). The Dow is comprised of 30 time-tested, diverse, multinational businesses, and is share price-weighted. This means share price, not market cap, moves the Dow. No company has more influence on the Dow Jones at the moment than Goldman Sachs, and Goldman's board may not want to give up this perceived advantage.
NYSE: GS
Key Data Points
But there's also a good likelihood that Goldman Sachs stock will head higher over the long run, therefore necessitating a forward split at some point. For instance, it's the undisputed leader in investment banking and mergers & acquisitions (M&A). With the U.S. firmly in a rate-easing cycle, the prospect of increased M&A activity is back on the table.
Furthermore, Goldman has demonstrated it's less sensitive to market fluctuations than most financial stocks. During periods of heightened turbulence, an uptick in trading activity tends to boost its trading revenue, which can offset (or more than offset) struggles in other segments.
Netflix
The third blockbuster stock-split stock that can be announced at some point within the next year is none other than streaming services leader Netflix (NFLX +1.04%). Netflix has completed two forward splits since going public in May 2002: a 2-for-1 split in February 2004, and a 7-for-1 split in July 2015.
Netflix's retail investor ownership is right on the borderline of being meaningful, with a little over 20% of its shares held by everyday investors. With its share price topping $1,300 in June and ending Sept. 9 at approximately $1,263, it's fair to say that some retail investors aren't able to purchase shares. For context, the last time Netflix split, its stock was hovering around $700/share.
NASDAQ: NFLX
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To keep with the theme of this list, the impetus for a split, beyond just a high nominal share price, is the expectation that operating outperformance will send shares even higher over the long run. Netflix has produced more original series than other streaming platforms, and it's enjoyed premier pricing power throughout its subscription tiers.
Netflix has witnessed a significant boost following the introduction of an ad-backed subscription tier. As of mid-May, the company's ad-supported tier had a whopping 94 million monthly active users. This cost-effective option for younger adults has proved to be a smart way to capture and retain the next generation of consumers.
Considering how well forward stock-split stocks have historically performed in the 12 months following their split announcement, Netflix might be able to use an announced split as a way to mask its pricey valuation (at least in the short run). Although its cash flow is expanding nicely, its shares are nearing a forward price-to-earnings multiple of 40. A stock split that enhances retail ownership can help support a premium near-term valuation.
