This AI Pioneer, Exhibiting a 557% Growth Over a Two-Year Period, May Emerge as the Upcoming Stock Split Contender
This AI Pioneer, Exhibiting a 557% Growth Over a Two-Year Period, May Emerge as the Upcoming Stock Split Contender
Management often announces a stock split following a prolonged increase in a company's share price. Despite a split not altering a business's core fundamentals, it's generally seen as a sign from management that the stock's value is expected to continue climbing. Consequently, investors tend to invest in stock split stocks to profit from the momentum and the signal sent by the management.
However, buying shares before the announcement is even better. For instance, since hitting a low two years ago, the share price of a prominent AI company has soared 557%. Despite already reaching new record highs this year, the business's potential is far from exhausted.
Investors might want to consider purchasing shares of Meta Platforms (META -1.12%).
Emphasizing artificial intelligence
AI has always played a significant role in Meta's operations, ranging from curating the most pertinent content on your Facebook or Instagram Feed to aiding marketers in building and targeting their ad campaigns. Over the past two years, Meta has significantly escalated its AI investments across its various platforms.
This heightened investment was spurred in part by the introduction of Reels, Meta's version of TikTok. Reels' engagement is heavily influenced by an AI algorithm that recommends top-notch content. Besides enhancing its content recommendation engine to show more pertinent and engaging Reels to users, Meta has utilized the same general algorithm across a wider range of content on its various surfaces.
This strategy has resulted in an 10% increase in total ad impressions in the second quarter, along with a 10% increase in the average price of an ad.
Meta is also focusing on AI for advertisers. Currently, it only suggests targeting criteria to marketers, but CEO Mark Zuckerberg envisions AI taking over all the creative aspects of ad development, including the development of ad content, the testing of variations, and the creation of entire campaigns based on a given budget and objective. Meta is already offering some AI-powered features through its Advantage+ tools for shopping and app install ads.
Meta's use of AI is most noticeable in its messaging services, where Meta AI serves as an AI assistant similar to OpenAI's ChatGPT. Zuckerberg aims to make it the most frequently used AI assistant by the end of 2024, with 185 million weekly users as of August.
The implementation of Meta AI does not come without cost. Meta spent $28 billion on capital expenditures in 2023, and management expects to spend $37 billion to $40 billion this year. Zuckerberg predicts that the expenses associated with training and operating AI will continue to climb in the coming year.
Meta looking ahead
Meta's substantial investments in AI research provide it with a significant edge over its competitors. Few companies can afford to invest as much in AI as Meta, especially considering the limited number of companies that spend more. "We are in a fortunate position where the strong results we're seeing in our core products and business give us the opportunity to make deep investments for the future," Zuckerberg said during Meta's second-quarter earnings call.
Meta's long-term focus has served it well in the past and gives it a unique advantage in the current environment. Meta notably made its Llama foundation models open-source for developers, creating a more attractive and cost-effective option for anyone looking to develop an AI-powered application. This decision has the potential to grow the development ecosystem more quickly than if Meta had charged for licenses, ultimately leading to lower costs and faster development for Meta in the long term.
All of these efforts are in line with Zuckerberg's goal of establishing Meta as the leading AI company in the world.
Is a split imminent in 2025?
Given Meta's share price, a stock split is certainly within the realm of possibility. More importantly, Meta's stock currently trades at a fair value, which should bolster management's confidence in splitting the stock and continuing its upward trajectory.
Shares currently trade for less than 24 times analysts' 2025 earnings estimates, an attractive value compared to other AI stocks. Meta's management also shares this sentiment, as it has been buying back billions of dollars worth of stock each quarter. In the last quarter alone, it purchased $6.3 billion worth of shares, with more than $60 billion remaining under its current repurchase authorization.
It's worth noting that the increase in capital expenditures over the past few years will result in higher depreciation expenses, negatively impacting the income statement. However, Meta's free cash flow growth should remain robust.
Whether or not Meta announces a stock split, the current price represents a great investment opportunity.
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Investors might be interested in considering additional investments in the finance sector, given Meta Platforms' significant investments in artificial intelligence. For instance, Meta's AI investments have led to a 10% increase in total ad impressions and a 10% increase in the average price of an ad in the second quarter.
Given Meta's strong focus on AI and its fair share price, investors might question if a stock split is imminent in the future. The company's current trading price is less than 24 times analysts' 2025 earnings estimates, and its management has been actively buying back shares, indicating confidence in the stock's value and momentum.