ASML and Meta Platforms could split their high-flying shares soon.
Several of the market’s hottest artificial intelligence (AI) companies — including Nvidia, Broadcom, and Super Micro Computer — all split their stocks or announced their plans to do so over the past year. Those events didn’t actually make their high-flying stocks fundamentally cheaper, since they simply split their existing shares into smaller slices, but they still attracted a lot of attention from retail investors who wanted to buy entire lots (100 shares) of a stock instead of just a few. They also made it easier to trade options, since a single contract is tethered to a single lot, and for the companies to pay their employees with more flexible stock-based compensation plans.
So for long-term investors, stock splits don’t matter too much because they don’t change the company’s business model or valuations. But forward stock splits are still usually a sign of a well-run company — since its stock price has risen so much that it needs to be pruned. ASML (ASML -1.84%) and Meta Platforms (META 1.60%) are two AI-driven companies that fit that description and might be ripe for a split.
Image source: Getty Images.
ASML
ASML is the world’s largest producer of lithography systems for optically etching circuit patterns onto silicon wafers. It’s also the only producer of high-end extreme ultraviolet (EUV) systems for manufacturing the world’s smallest and densest chips. The Dutch company’s stock has nearly quadrupled over the past five years as the top chip foundries — including Taiwan Semiconductor Manufacturing, Samsung, and Intel — scrambled to stay in the “process race” to produce more advanced chips.
ASML’s stock now trades at about $840, but it’s been years since its last stock split. It actually did three forward stock splits during the dot-com bubble and a reverse stock split in 2007. However, another forward stock split might generate some fresh attention for ASML — which is often overshadowed by better-known stocks like Nvidia.
From 2020 to 2023, ASML’s revenue grew at a compound annual growth rate (CAGR) of 25%. From 2023 to 2026, analysts expect its revenue and earnings per share (EPS) to rise at a CAGR of 13% and 21%, respectively, as it grapples with tighter restrictions on its exports to China. However, the expansion of the AI market could offset a lot of that pressure.
ASML’s stock isn’t expensive at 25 times next year’s earnings, and its monopolization of a crucial chipmaking technology makes it one of the easiest ways to profit from the secular growth of the semiconductor and AI markets.
Meta Platforms
Meta Platforms, the parent company of Facebook, Instagram, Messenger, and WhatsApp, leverages AI to analyze its user data and craft targeted ads. It’s also developing its own AI accelerator chips to gradually curb its dependence on Nvidia’s chips. It served 3.27 billion daily active people across its four main apps in its latest quarter.
Meta endured some tough macro, competitive, and platform-related challenges (mainly from Apple‘s iOS update in 2021), but it still grew its top line at a CAGR of 16% from 2020 to 2023. It recovered by attracting Chinese advertisers, expanding Reels to tackle TikTok, and strengthening its first-party data collection tools to counter Apple’s privacy-oriented changes.
From 2023 to 2026, analysts expect Meta’s revenue and EPS to grow at a CAGR of 15% and 23%, respectively, even as it expands its unprofitable Reality Labs segment to produce more augmented reality (AR) and virtual reality (VR) products. Those are robust growth rates for a stock that trades at 22 times this year’s earnings.
Meta’s stock trades in the low $480s, but it’s the only “Magnificent Seven” stock that has never split its shares. A stock split might generate some fresh buzz from this social media titan that still looks undervalued relative to its growth.
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. Leo Sun has positions in ASML, Apple, and Meta Platforms. The Motley Fool has positions in and recommends ASML, Apple, Meta Platforms, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.