Monday, June 17, 2024

“Magnificent Seven” Stock Split: Who Will Be Next After Nvidia?


Nvidia‘s (NASDAQ: NVDA) 10-for-1 stock split is a milestone for the artificial intelligence (AI) chip leader.

It’s the company’s first stock split in nearly three years after it split its shares during the pandemic-era tech boom. It also adds to a streak of stock splits enacted by the “Magnificent Seven” since this group of high-flying tech players began soaring at the start of the pandemic.

Of the group, five of the seven stocks have split their shares in the last four years, and two — including Nvidia’s split set to take effect on June 7 — have done it twice.

The table below shows which of the Magnificent Seven stocks have split in recent years and when.

Company

Date

Size of Split

Apple

Aug. 28, 2020

4-for-1

Tesla

Aug. 31, 2020

5-for-1

Nvidia

July 20, 2021

4-for-1

Amazon

June 6, 2022

20-for-1

Alphabet

July 15, 2022

20-for-1

Tesla

Aug. 24, 2022

3-for-1

Nvidia

June 7, 2024

10-for-1

Data source: Company reports.

As you can see, both Microsoft (NASDAQ: MSFT) and Meta Platforms (NASDAQ: META) are missing from the list.

Not surprisingly, those two stocks will have the highest individual share prices within the Magnificent Seven after Nvidia’s split, so they look like the two most likely to split their shares next.

Let’s take a look at the case for each one.

A robot holding a tablet with a stock chart going up.

Image source: Getty Images.

Will Microsoft do a stock split?

Microsoft is the most valuable company in the world, with a market cap north of $3 trillion, and it’s been publicly traded since the 1980s, so it shouldn’t come as a surprise that the stock has had several splits in its history. However, it hasn’t done any in nearly a generation; those splits were during the dot-com era or in its early history. In fact, its last stock split was a 2-for-1 in February 2003.

Microsoft struggled for years after the dot-com bubble burst, but over the last decade, the company has thrived under CEO Satya Nadella. He ended the company’s war with Apple and invested aggressively in cloud computing, which is now its biggest business segment, led by Microsoft Azure. More recently, Microsoft stayed on the cutting edge of the generative AI revolution thanks to its close partnership with OpenAI, in which it’s invested an estimated $13 billion.

The stock has jumped by more than 10 times during Nadella’s tenure and now exceeds $400 a share, making it the third highest-priced stock on the Dow Jones Industrial Average.

Microsoft hasn’t commented on a potential stock split, but one seems likely if the shares continue to move higher. Splitting its stock would help the company stay within the general boundaries of the Dow, which as a price-weighted index tends to avoid holding stocks with share prices that are too high.

Will Meta Platforms do a stock split?

Unlike any of its Magnificent Seven peers, Meta Platforms has never done a stock split. It’s the most recent of the seven stocks to go public, holding its IPO in 2012, with a starting price of $38 per share. Since then, the stock has appreciated considerably and trades at $477 as of Tuesday’s close, meaning the shares are up by roughly 13 times since it went public.

That’s an impressive track record for the social media leader, but it has yet to translate into a stock split, and executives haven’t addressed it so far.

The Facebook parent did just pay a dividend for the first time, indicating that management might be willing to consider a stock split as well. While there isn’t a direct connection between dividends and stock splits, implementing a dividend is a significant change in the company’s approach to managing the stock and returning capital to shareholders.

Its share price isn’t quite at the point where a split seems expected, but it does have a higher share price than any of the other Magnificent Seven stocks. Like other companies have said about their stock splits, a split would probably help make the shares more attractive to retail investors, and it could also help Meta gain admission into the Dow because it would bring its price more in line with the average Dow stock.

Which will be the next to split its stock?

Of these two companies, Meta seems to be more likely to be the next to do a stock split. Not only is its share price higher than Microsoft’s, but its valuation is also cheaper at a price-to-earnings ratio of 27. It also has a lower market cap than Microsoft, meaning that it’s easier for the share price to surge from its current level because it can do so by adding less market value than Microsoft.

There’s no guarantee that Meta will split its stock, but it would make sense for the company to do so — especially if the share price keeps going up.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

“Magnificent Seven” Stock Split: Who Will Be Next After Nvidia? was originally published by The Motley Fool



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