One of the more striking trends in recent years has been the resurgence of stock splits. The introduction of no-cost and low-cost trading in recent years has eliminated the need to buy stocks in round lots of 100 shares.
Yet as the current stock market rally has illustrated, share prices can quickly rise to hundreds or thousands of dollars, discouraging smaller retail investors from buying the stock. As a result, stock splits have seen a resurgence in popularity.
While a great many stocks are still reeling from last year's bear market, many have come roaring back, with some sporting double- or even triple-digit gains so far this year. Among those have been the vaunted "Magnificent Seven" stocks (as of market close on Wednesday):
- Alphabet: Up 47%
- Amazon: Up 72%
- Apple: Up 48%
- Meta Platforms (META 3.91%): Up 164%
- Microsoft: Up 54%
- Nvidia (NASDAQ: NVDA): Up 211%
- Tesla: Up 94%
So while a stock split doesn't impact the company's underlying value, it makes the stock more affordable for the average investor. Here are two Magnificent Seven stocks that have surged in price this year and could split their shares in 2024.
Image source: Getty Images.
1. Meta Platforms' current price: $327
During periods of economic instability, businesses tend to slow spending to shore up their financial statements. Marketing budgets are among the easiest to cut on short notice, which cast a pall on Meta Platforms (META 3.91%) last year, as the stock plunged 64%.
The company took swift action, embarking on a dramatic cost-cutting campaign and paring back its workforce. From its initial estimate in a range of $94 billion to $100 billion, Meta Platforms slashed its full-year 2023 expense estimates to a range of $88 billion and $89 billion. Add to that a return to revenue growth this year, and investors have responded accordingly, driving the stock up 164%, within striking distance of a new all-time high.
The company's recent results help illustrate its future potential. In the third quarter, Meta's revenue grew 23% year over year to $34.1 billion, while earnings per share (EPS) surged 168% to $4.39. Those results come despite the fact that digital ad spending grew by just 7.8% this year, its slowest rate in more than a decade, according to Insider Intelligence. When historic ad spending resumes, as it no doubt will, Meta Platforms is well positioned to reap the rewards.
Recent moves into artificial intelligence (AI) could well accelerate Meta's growth. The company has released AI-powered tools for advertisers on its platform, and Advantage+ is "one of the fastest-growing ad products" in Meta's history. A recent trial showed a 35% increase in return on ad spend, along with a 58% decrease in incremental cost per purchase. By automating many mundane marketing functions, Meta is simplifying the advertising process and making it less expensive, likely attracting more marketing dollars.
Meta's growth this year has been stellar, but is even more pronounced when viewed over the past decade. Revenue has grown 1,220%, while net income surged 2,110%. This has fueled Meta's robust stock price gains of 481%, with the stock price recently clocking in at roughly $317 as of Wednesday's market close. Given the company's history of growth and continuing prospects, there's a very real possibility that Meta Platforms could enact a stock split in 2024.
2. Nvidia's current price: $466
Nvidia (NVDA 2.13%) pioneered the graphics processing units (GPUs) that make video game images more realistic. From those humble beginnings, the company has become a technology powerhouse, underpinning everything from cloud computing to self-driving cars, and from data centers to AI.
By designing hardware and software packages that make its chips perform even better, Nvidia stays light-years ahead of the competition in terms of performance.
That's why Nvidia controls a dominant 80% share of the discrete desktop GPU market, according to data provided by Jon Peddie Research (via Tom's Hardware). But that's just the beginning.
Nvidia is also the leading provider of GPUs used in data centers, with a market share estimated at 95%, per CFRA Research analyst Angelo Zino. If that weren't enough, Nvidia controls as much as 95% of the machine learning market, according to analysts at New Street Research. Current demand for AI processors is off the charts, and Nvidia has established itself as the gold standard. Since we're still in the early innings of AI, there's likely more to come.
The company has been able to parlay that dominance into superb financial results. In its fiscal 2024 third quarter (ended Oct. 29), the company delivered record revenue that jumped 206% to $18.1 billion, while its diluted EPS surged 1,274% to $3.71. It's worth noting that the year-over-year percentage gains were skewed by weakness during last year's downturn, which in no way detracts from the enormity of Nvidia's accomplishment.
Nvidia has grown like a weed this year, but that's not unusual. Looking back over the past 10 years, the company has increased revenue by 1,480%, while net income soared 6,190%. This has fueled Nvidia's massive stock price gains of 11,950% over the same ten-year period, with the stock price recently clocking in at about $466 as of Thursday's market close.
Given the company's market-leading positions in numerous secular growth industries, history of continued innovation, and soaring stock price, it wouldn't be surprising if Nvidia conducted a stock split in 2024.
The elephant in the room
While both of these stocks have far outpaced the returns of the broader market indexes over the past 10 years, there's the matter of valuation to consider. Meta Platforms currently sells for 28 times earnings, a bit higher than the price-to-earnings ratio of 25 for the tech-centric Nasdaq Composite.
The difference is much greater with Nvidia, which is trading for 60 times earnings. That's enough to send some investors running for cover.
That said, given their history of market-beating returns and exceptional performances, I'd argue that both stocks are deserving of a premium -- and frankly worth every penny.
