Stock splits are in focus again, after semiconductor giant Nvidia announced during its report for the first quarter of fiscal 2025 (for the quarter ended May 22) its intention to separate.
Nvidia’s 10-to-1 attacker stock split came into force on June 7. It wasn’t surprising to see Nvidia take this step, even though a stock split is just a cosmetic move that reduces a company’s price per share instead of increasing the number of shares outstanding . After all, Nvidia stock has soared 727% since the start of 2023 thanks to strong demand for its products. artificial intelligence (AI) chips.
Nvidia management stressed that the split was carried out “to make shareholding more accessible to employees and investors”. It’s also worth noting that Nvidia is the sixth S&P500 The company is going to do a stock split this year, and Bank of America analysts say more tech splits could be on the way.
That’s the reason Metaplatforms (NASDAQ:META), a stock that has gained 322% since the start of 2023 and has a market cap of $1.29 trillion, could be subject to a stock split. Each share of Meta trades at just over $500, and management may want to reduce the price of each stock through a split to make it available to more investors, although the move won’t change the fundamentals of the business.
It should be noted that Meta has never split its shares. It remains to be seen whether management will decide to make such a decision. However, it would be prudent for investors to take a closer look at its fundamentals, which will not be affected by a stock split, as they will play a vital role in deciding the stock’s future direction.
Meta Platforms’ strong outlook makes the stock an attractive investment
Although Meta’s stock price is over $500, retail investors can still invest in the stock through brokers who allow the purchase of fractional shares. That’s why it’s important to take a closer look at the social media and digital advertising giant’s business prospects, as small investors can still buy fractional shares even if there is no split .
Meta operates in a multibillion-dollar digital advertising market, estimated at $680 billion last year. Last year, Meta’s ad revenue was $132 billion, indicating that its share of the digital ad space stood at just over 19% last year. This year, global digital advertising spending is expected to increase nearly 9% to $740 billion. The good news is that Meta’s growth indicates it is gaining more share in this space.
The company’s advertising revenue increased 26% year over year in the first quarter of 2024 to $35.6 billion. Meta expects overall revenue to rise to nearly $38 billion in the current quarter, halfway through its forecast range, which would represent a 19% year-over-year jump. the other. It’s worth noting that Meta’s revenue grew 11% during the same period last year.
The company’s digital advertising business is therefore gaining momentum, and that’s good news for investors as the global digital advertising market is expected to generate $966 billion in revenue in 2028. One of the The main reasons Meta is gaining traction in this market is its focus on integration. AI tools in its popular apps such as Instagram, Facebook and WhatsApp.
Its AI tools are intended to help both creators and advertisers use its platforms, and the silver lining is that its tools lead to accelerated growth. CEO Mark Zuckerberg said during the company’s April earnings conference call: “AI has also always played an important role in how we create value for advertisers by showing people more ads. relevant, and if you look at our two end-to-end AI-powered systems, “Advantage+ Shopping and Advantage+ for App campaigns, revenue from those has more than doubled since last year.”
Most importantly, Meta continues to push the boundaries of the digital advertising market by launching more AI-driven tools. The company recently announced an AI-powered advertising program for businesses on WhatsApp, a move that could help it monetize its popular messaging service. With AI expected to account for more than 90% of ad buys by 2029, according to GroupM, Meta is making the right choice by focusing on integrating this technology into its business.
As such, it’s easy to see why analysts expect Meta’s earnings to grow at an annual rate of 30% over the next five years, compared to 11% annual growth over the past five years.
The stock is worth buying thanks to its valuation
Although each share of Meta costs over $500, a closer look at the company’s valuation indicates that it is cheap given the impressive growth it has generated. Meta stock trades at 29 times current earnings and 26 times forward earnings. Both multiples are cheaper than the Nasdaq100 multiple of 30 of index profits (using the index as a proxy for technology stocks).
Small investors with the ability to purchase fractional shares may consider purchasing Meta independent of a split. And those looking to add a potential AI winner to their portfolios would do well to buy Meta Platforms given its attractive valuation and the potential growth it could generate over the long term.
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Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Hard Chauhan has no position in any of the stocks mentioned. The Motley Fool ranks and recommends Meta Platforms and Nvidia. The Motley Fool has a disclosure policy.
Is this billion-dollar company about to join Nvidia in the stock splitting club? was originally published by The Motley Fool
