In case you haven't noticed, the stock market has been practically unstoppable in 2024. The iconic Dow Jones Industrial Average, benchmark S&P 500, and growth-focused Nasdaq Composite have reached multiple record highs and respectively risen by 17%, 27%, and 31% this year, as of the closing bell on Dec. 10.
Although excitement surrounding the rise of artificial intelligence (AI) and Donald Trump's November victory have both played key roles in sending the broader market higher, don't overlook the importance of stock-split euphoria in lifting Wall Street's tide in 2024.
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Stock-split euphoria has helped send the broader market to new heights
A stock split is an event that allows a publicly traded company to alter both its share price and outstanding share count by the same factor. These changes are entirely cosmetic, with stock splits having no effect on a company's market cap or its underlying operating performance.
Splits come in two varieties, with investors overwhelmingly favoring one more than the other. The less-popular of the two is reverse stock splits, which are designed to increase a company's share price. This type of split is typically conducted by struggling businesses that are aiming to meet the continued minimum share price listing standards of a major stock exchange.
By comparison, investors have a tendency to flock to companies completing forward stock splits. A forward split is geared at reducing a company's share price to make it more nominally affordable for retail investors who aren't able to buy fractional shares with their broker. Businesses enacting forward splits are almost always out-executing their competition and on the cutting edge of innovation within their respective industries.
In 2024, more than a dozen high-profile forward stock splits took place, with some of the most-popular originating from the AI revolution. Nvidia, Broadcom, and Super Micro Computer all completed respective 10-for-1 forward splits.
Since companies conducting forward stock splits have a tendency to outperform the S&P 500 in the 12 months following their split announcement, it's not a surprise that investors are constantly on the lookout for which stock(s) will be next to split their shares.
Two candidates stand out as the likeliest to become Wall Street's most-prominent stock-split stocks of 2025.
Image source: Getty Images.
Meta Platforms
The split that would almost certainly take center stage if it were announced in 2025 is social media juggernaut Meta Platforms(NASDAQ: META). It's the only member of the "Magnificent Seven" that's never split its shares. But with a nearly $620 share price, as of Dec. 10, the impetus for a forward split is very much present.
Though Meta finds itself lumped into the AI conversation, the lion's share of its sales can be traced to advertising. All but $2.3 billion of the company's $116.1 billion in sales through the first nine months of 2024 have come from advertising.
Meta is the parent of some of the most-popular social media destinations in the world, including Facebook, WhatsApp, Instagram, Facebook Messenger, and Threads. Collectively, its family of apps lured 3.29 billion daily active users during the September-ended quarter. Advertisers are well aware that they're not going to find a social media platform with broader reach than Meta, which is what helps it command substantial ad-pricing power more often than not.
Another factor that helps lift Meta's boat over the long run is its ample cash balance and robust operating cash flow. It closed out 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 buffer that allows CEO Mark Zuckerberg to aggressively invest for the future.
Speaking of future investments, Meta is spending $10.5 billion on Nvidia's graphics processing units (GPUs) to beef up its data centers. This investment furthers Meta's AI ambitions and should (eventually) position the company to be a critical on-ramp to the metaverse in the latter-half of the decade.
Costco Wholesale
A second brand-name company that's poised to become Wall Street's next stock-split stock in 2025 is warehouse club Costco Wholesale(NASDAQ: COST). Costco hasn't split its shares in close to 25 years, and over that time its share price has climbed to almost $1,000 per share. For everyday investors without access to fractional-share purchasing, Costco's share price is becoming prohibitive.
The beauty of the Costco operating model is threefold. To start with, it's a consumer staples stock that sells basic necessity goods. Though Costco's goal is to get shoppers to buy higher-margin discretionary items, the simple fact that it sells groceries and households products continues to draw foot traffic into 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's an operating marvel. Having deeper pockets than mom-and-pop shops and most grocery chains allows the company to buy its products in bulk. Buying in bulk lowers the per-unit cost for each item, which is what helps Costco Wholesale undercut many of its competitors on price -- especially on groceries. This price advantage draws new members to the company and helps to keep existing members loyal.
But arguably the best aspect of Costco's operating model is that it's membership-driven. The annual fee the company collects from its members is high margin and further helps to buffer the razor-thin margins for groceries that attract new members.
Additionally, it's only logical for shoppers to want to get as much as possible out of their $65 or $130 annual membership fee. Therefore, they're likely to make their largest purchases at Costco, which reinforces the value of the company's brand.
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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. Sean Williams has positions in Meta Platforms. The Motley Fool has positions in and recommends Costco Wholesale, Meta Platforms, and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
