Stock Splits: A Sign of Confidence and Growth Potential

Companies often decide to split their stock after a significant increase in price. Although this action does not alter the company’s fundamentals, it signals that management expects the stock to keep rising. Consequently, many investors buy shares right after a stock-split announcement and continue purchasing long after the split takes effect.

Focusing on businesses that perform exceptionally well is more beneficial. These companies tend to see rising stock prices that can justify a split. They can reward shareholders whether or not management decides to split shares. If a split does take place, it might give the stock price an additional boost, leading to substantial returns for investors.

Where to invest $1,000 right now? Our analyst team has identified the 10 best stocks to buy at this moment. See the 10 stocks »

Examining Meta Platforms: A 677% Climb Since 2015

Meta Platforms has seen impressive growth over the past decade. Surprisingly, the company was known as Facebook back in 2015, the name of its main social media platform.

Over the years, Meta invested billions in virtual and augmented reality, as well as artificial intelligence (AI). The AI investments have fueled meaningful growth, whereas the virtual reality projects have yet to make a significant impact. Most of Meta’s revenue comes from advertising sales, and AI has enhanced these efforts in various ways.

Improved algorithms showcase more engaging content, keeping users on the platform longer and increasing ad exposure. AI has played a key role in developing a general recommendation engine that works across different formats such as posts, photos, videos, Stories, and Reels. A more nuanced algorithm can lead to better ad targeting for marketers, allowing them to reach the right audience at the right moment.

With ongoing advancements in generative AI, such as the Llama large language model, Meta enhances ad campaign tools significantly. Advertisers can now create and test multiple ad versions more easily, boosting the effectiveness of ads on Facebook and Instagram. CEO Mark Zuckerberg envisions a future where marketers can set their objectives and budgets, and the AI will optimize everything from there.

Such enhancements come with a price: capital expenditures for 2024 are estimated between $38 billion and $40 billion. In 2025, spending is projected to increase even further, reflecting the value generated from existing revenue and earnings growth. Over the first three quarters of 2024, Meta saw revenue rise by 22.5%, leading to a 66% increase in earnings per share.

Despite this rapid growth, Meta’s share price has kept pace with its earnings. As it stands, the stock trades at a forward P/E ratio of 23.4, making it reasonably priced. With shares hovering around $600, a stock split may be a logical step, given the promising growth outlook and current valuation.

Microsoft: A 797% Increase Since 2015

Microsoft has evolved from a leader in personal computing to a key player in AI. In early 2023, it increased its investment in OpenAI by $10 billion, strengthening its cloud computing division, Azure, and enhancing its position among competitors seeking to attract AI-focused customers.

As a result, Azure has experienced rapid revenue growth, driven by rising demand for AI services. After a 33% growth in the first quarter of fiscal 2025, Microsoft anticipates further acceleration later in the year as they work through delays between capital investments and server availability. Demand for Azure is strong and should keep pace with the company’s increasing capacity.

For 2025, Microsoft plans to invest around $80 billion in AI-enabled data centers, a substantial uptick from the $55.7 billion spent in fiscal 2024. This investment is backed by the company’s software division, which continues to generate substantial cash flow, especially with the integration of AI through Copilots, designed to enhance productivity and accuracy for its users.

Microsoft operates at the forefront of AI in both cloud computing and enterprise software, with both areas positioned for growth in the coming years. Analysts expect the company to experience significant revenue and earnings growth during this period.

Currently, Microsoft shares trade at about 31 times anticipated earnings for fiscal 2025, which might seem high, but the company’s robust free cash flow justifies this premium. With its stock price exceeding $400, Microsoft appears poised for a potential stock split in 2025.

Should You Invest $1,000 in Meta Platforms Now?

Before purchasing stock in Meta Platforms, keep this in mind:

The Motley Fool Stock Advisor analyst team has pinpointed the 10 best stocks for today, and Meta Platforms did not make the list. The stocks chosen could lead to remarkable returns in the future.

For instance, if Nvidia had been recommended on April 15, 2005, a $1,000 investment would now be worth $818,587!*

Stock Advisor provides investors with a straightforward approach to success, offering portfolio guidance, ongoing analysis, and new stock picks each month. Since 2002, the Stock Advisor service has posted returns that are over four times greater than the S&P 500.*

See the 10 stocks »

*Stock Advisor returns as of January 13, 2025

Randi Zuckerberg, a former director of market development and spokesperson for Facebook as well as sister to Meta Platforms CEO Mark Zuckerberg, is on The Motley Fool’s board of directors. Adam Levy holds positions in Meta Platforms and Microsoft. The Motley Fool maintains positions in and endorses Meta Platforms and Microsoft. The Motley Fool also recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.