When the curtain closes on 2024 in just four days, it'll likely go down as another phenomenal year for Wall Street and investors. On a year-to-date basis, as of the closing bell on Dec. 23, the ageless Dow Jones Industrial Average, benchmark S&P 500, and growth-powered Nasdaq Composite have respectively increased by 14%, 25%, and 32%.
No shortage of catalysts is responsible for propelling Wall Street's major stock indexes to new heights, including the rise of artificial intelligence (AI), better-than-expected corporate earnings, and Donald Trump's November victory. Don't forget, the Dow, S&P 500, and Nasdaq Composite all rocketed higher during Trump's first term in the Oval Office.
But perhaps Wall Street's unsung hero, which really helped to fuel the 2024 bull market rally, is the euphoria regarding stock splits.
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Investors are flocking to stock-split stocks
A stock split is a mechanism that allows publicly traded companies to adjust their share price and outstanding share count by the same factor. Keep in mind that changing a company's share price and share count by the same magnitude has no impact on its market cap or underlying operating performance.
Although stock splits come in two varieties, investors overwhelmingly drifted toward industry-leading businesses conducting forward splits in 2024. A forward split reduces a company's share price, often with the goal of making shares more nominally affordable for investors who aren't able to buy fractional shares through their broker. This is the type of split high-flying companies that are out-innovating their peers undertake.
To add, companies enacting forward splits have, historically, outperformed Wall Street's benchmark index. According to an analysis from Bank of America Global Research, forward-split stocks have averaged a 25.4% return in the 12 months following their announcement since 1980, which compares to a more modest 11.9% return for the S&P 500 over the same timeline.
This year, over a dozen prominent companies completed stock splits, including rapidly growing AI stocks Nvidia, Broadcom, and Super Micro Computer. But what investors really want to know is which stock is primed for a split and ready to captivate Wall Street's attention in 2025.
The answer could be right under your nose within the ultra-popular "Magnificent Seven."
This unstoppable Magnificent Seven member can make stock-split history in 2025
The Magnificent Seven is a term used to account for seven of the largest and most-influential publicly traded companies on Wall Street. In order of descending market cap, these seven components are:
- Apple
- Nvidia
- Microsoft
- Alphabet
- Amazon
- Meta Platforms (META -0.59%)
- Tesla
These businesses have a lot in common. They've all handily outperformed Wall Street's major stock indexes over long periods, and they possess sustainable competitive advantages within their respective industries.
But there is an industry leader among these seven that's truly unique, at least when it comes to completing stock splits. I'm talking about social media colossus Meta Platforms, which is the only Magnificent Seven member that's never completed a split.
As of the closing bell on Dec. 23, Meta's shares were a stone's throw away from topping $600, and had handily surpassed $600 per share just two weeks prior. Without a split, investors without access to fractional-share purchasing through their broker may struggle to invest in the company behind leading social site Facebook.
Image source: Getty Images.
Meta Platforms stock is likely to head higher, which makes a stock split a priority in the new year
One of the key catalysts for announcing stock splits is a steadily rising share price. Based on Meta's competitive advantages and balance sheet, all signs point to this Mag-7 member having another phenomenal year in 2025.
Although all eyes have been on Meta's AI and metaverse ambitions, it's important not to overlook its sheer dominance in the social media space. During the September-ended quarter, the company's family of apps, which includes Facebook, Instagram, WhatsApp, Facebook Messenger, and Threads, attracted 3.29 billion daily active users. No other social platform comes close to luring this many eyeballs daily, which is what typically affords Meta exceptional ad-pricing power. Nearly 98% of Meta's revenue can currently be traced to advertising.
Meta has history on its side, as well. While ad spending tends to be highly cyclical, the U.S. economy spends a disproportionate amount of time expanding, relative to contracting. All 12 recessions since the end of World War II resolved between two and 18 months. By comparison, two periods of growth lasted beyond 10 years. The nonlinearity of economic cycles helps to fuel ad spending.
Another reason Meta stock is thriving is because it's a cash cow. It closed out September with $70.9 billion in cash, cash equivalents, and marketable securities in its coffers, and has generated $63.3 billion in operating cash flow through the first nine months of 2024. It's one of very few public companies that can afford to take risks on high-growth initiatives thanks to its superior balance sheet.
These "risks" allow it to aggressively invest in the AI revolution -- Meta is purchasing 350,000 H100 ("Hopper") graphics processing units from Nvidia for roughly $10.5 billion -- and position the company to be a key on-ramp to the metaverse in the latter half of this decade.
To round things out, Meta Platforms' valuation also makes sense. Whereas Apple is valued at its highest trailing-12-month earnings multiple in a decade, and Nvidia crested a price-to-sales ratio of 40 during the summer, Meta Platforms is trading at less than 24 times forward-year earnings. What makes this multiple particularly cheap is that its earnings per share is forecast to grow by compound annual rate of more than 21% through 2027.
Meta Platforms is perfectly positioned to become Wall Street's hottest stock-split stock of 2025.
