Up 725% in 10 Years: Why This Could Be Wall Street's Next Big Stock Split

Some might argue a stock split is merely cosmetic. Existing owners still own the same percentage of the company they did before the split and the business continues to operate just as it had before. The only difference is new buyers can now buy even smaller portions of the business, and shareholders can sell off smaller portions.

But a stock split, which usually comes after a prolonged period of gains in the stock price, can provide a useful signal from management. If management expects the price to continue climbing higher, it's more likely to split the stock. If it thought the stock was overvalued, it might hold off. As a result, stock prices seem to move higher when management announces a stock split.

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In that case, it's best to buy a stock ahead of management's decision. And one stock, up 725% in the last decade, is a great buy at its current price whether management decides to split its shares or not.

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The next big stock split

There are a few factors that go into the decision to split shares. For one, the stock probably has a relatively high price, making it difficult for retail investors to buy whole shares. But there are other factors at play as well, including how the company uses share-based compensation and how much of the business is owned by smaller investors. When all of them align, a stock split makes a lot of sense.

That's why Meta Platforms (NASDAQ: META) looks poised to split its shares in the near future. Not only does the stock trade well above $650 per share, it pays out over $16 billion in share-based compensation per year and 20% of the shares outstanding are held by retail investors.

Meta has been one of the most successful businesses over the last 10 years. After several major acquisitions -- Instagram, WhatsApp, Oculus -- the company has grown its user base across all of its apps while pushing the frontier of virtual reality and augmented reality. Its recent focus on artificial intelligence (AI) promises to unlock value across its properties, including WhatsApp and Reality Labs (its AR/VR business segment).

Thanks to strong execution, management has grown its annual advertising revenue from $11.5 billion in 2014 to $161 billion in 2024. That's an average compound annual growth rate of 30%.

But there's a lot more growth ahead for Meta Platforms, and there's a good reason management may want to split its stock.

There's a lot more growth to come

Meta sees several opportunities to grow faster over the long run than its smaller competitors and many other tech companies of its size. As mentioned, the key to unlocking a ton of value for Meta is its work in advancing artificial intelligence. To that end, management plans to spend around $70 billion this year on capital expenditures, mostly focused on building and outfitting data centers for AI training and inference.

AI has the power to unlock a ton of value for Meta's feed-based apps. The company is working on AI agents that can create and manage ad campaigns for any business with any product, including ad creatives customized for each user. That could increase the value of ads on Facebook and Instagram, open the door for more small businesses to advertise, and increase the total share of ad spend flowing to Meta. And this isn't some far-off dream, the company expects to roll out that feature by the end of next year, according to a report from The Wall Street Journal.

Meta also has an opportunity to build chatbot agents for businesses within WhatsApp and Messenger, offering individualized sales and customer service reps. That could further increase interest in Meta's click-to-message ad units, which were a $10 billion business in its most recently reported quarter. One analyst thinks Meta could generate $100 billion per year from chat agents by charging businesses directly.

Lastly, Meta can use generative AI to take full advantage of the immersive and personalized nature of virtual or augmented reality. It's already seen success integrating its Meta AI chatbot into a pair of glasses, giving the AI access to visuals. The next step is to let AI interact with the world virtually through augmented reality to help users understand what they're looking at, make decisions, or just have fun. Those uses could rapidly push AR and VR into the mainstream.

Importantly, Meta's stock trades at a reasonable valuation. Investors can buy shares for 26 times forward earnings expectations. It's worth noting that Meta's earnings growth expectations over the next few years are weighed down by the increased depreciation expense from the last few years' increase in capital expenditures related to AI. But if those AI investments pay off as expected, earnings growth should accelerate as it leverages its innovation across its applications and devices. Management could signal confidence in those efforts paying off by announcing a stock split, but it's worth owning at this price, whether or not a split ever materializes.

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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. Adam Levy has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.