In case you haven’t noticed, the stock market has been practically unstoppable in 2024. The iconic Dow Jones Industrial Averagebenchmark S&P 500and focused on growth Nasdaq Composite have reached multiple all-time highs and have risen respectively 17%, 27% and 31% this year, since the closing bell on December 10.
Although the enthusiasm surrounding the rise of artificial intelligence (AI) and Donald Trump’s victory in November have played a key role in driving up the broader market, let’s not overlook the importance of stock split euphoria in raising the tide on Wall Street in 2024.
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A stock split is an event that allows a publicly traded company to alter both its stock price and outstanding share count by the same factor. These changes are entirely cosmetic, as stock splits have no effect on a company’s market capitalization or its underlying operating performance.
The splits come in two varieties, and investors overwhelmingly favor one more than the other. He Less popular of the two is the reverse stock splitwhich are designed to increase the price of a company’s shares. This type of split is typically carried out by distressed companies that aim to meet the continuing minimum stock listing standards of a major stock exchange.
By comparison, investors tend to flock to companies that complete forward stock splits. A forward split aims to reduce the price of a company’s shares to make them nominally more affordable for retail investors who cannot purchase fractional shares with their broker. Companies that implement forward divisions almost always outperform their competitors and are at the forefront of innovation within their respective industries.
In 2024, more than a dozen high-profile forward stock splits occurred, with some of the most popular originating from the AI revolution. NVIDIA, Broadcomand super microcomputer all completed respective forward splits 10 for 1.
Given that companies that do forward stock splits have a tendency to outperform the S&P 500 in the 12 months following their split announcement, it’s no surprise that investors are constantly keeping an eye on which stocks will be next to split.
Two candidates stand out as the most likely to become Wall Street’s top stock split stocks in 2025.
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The division that would almost certainly take center stage if announced in 2025 is a social media giant. Metaplatforms(NASDAQ: META). He is the only member of the “Magnificent Seven” who has never split his shares. But with a share price of nearly $620 as of December 10, the momentum for an early split is very much there.
Although Meta is included in the AI conversation, most of its sales come from advertising. All but $2.3 billion of the company’s $116.1 billion in sales through the first nine months of 2024 came from advertising.
Meta is the parent of some of the world’s most popular social media destinations, including Facebook, WhatsApp, Instagram, Facebook Messenger, and Threads. Collectively, its family of apps attracted 3.29 billion daily active users during the quarter ended in September. Advertisers are well aware that they are not going to find a social media platform with a broader reach than Meta, which is what helps it have substantial power in ad pricing most of the time.
Another factor helping to lift Meta’s ship in the long term is its ample cash balance and strong operating cash flow. It closed the third quarter with $70.9 billion in cash, cash equivalents and marketable securities, and has generated $63.3 billion in net cash from its operations through the first nine months of 2024. This cash provides a cushion that allows CEO Mark Zuckerberg investing for the future.
Speaking of future investments, Meta is spending $10.5 billion on Nvidia graphics processing units (GPUs) to bolster its data centers. This investment furthers Meta’s AI ambitions and should (eventually) position the company to be a critical onramp into the metaverse in the second half of the decade.
A second brand-name company that is poised to become Wall Street’s next stock split in 2025 is Warehouse Club. Wholesale Costco(NASDAQ: COST). Costco hasn’t split its stock in about 25 years, and during that time its stock price has risen to nearly $1,000 per share. For everyday investors without access to buying fractional shares, Costco’s stock price is becoming prohibitive.
The beauty of Costco’s operating model is threefold. To begin with, it is a consumer staples stock that sells essential goods. Although Costco’s goal is to get shoppers to buy higher-margin discretionary items, the simple fact that it sells groceries and household products continues to drive foot traffic to its stores regardless of how well or poorly the U.S. economy is performing. This leads to predictable operating cash flow year after year.
Costco’s ability to use size to its advantage is the second reason it is an operational marvel. Having deeper pockets than mom-and-pop stores and most supermarket chains allows the company to buy its products in bulk. Buying in bulk reduces the unit cost of each item, helping Costco Wholesale undercut many of its competitors, especially on groceries. This price advantage attracts new members to the company and helps keep existing members loyal.
But arguably the best aspect of Costco’s operating model is that it’s member-driven. The annual fee the company charges its members is high-margin and also helps cushion the tight food margins that attract new members.
Plus, it stands to reason that buyers would want to get the most out of their $65 or $130 annual membership fee. Therefore, they are likely to make their largest purchases at Costco, reinforcing the company’s brand value.
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Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Sean Williams has positions in Meta Platforms. The Motley Fool ranks and recommends Costco Wholesale, Meta Platforms, and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
