AI stocks have been on a tear in the past two years, and the recent Stargate announcement has caused some of these stocks to start accelerating again. These AI companies have now reached prices that were unimaginable even just two years ago, and many analysts think they are still far from their peak.
Mega-cap names have been spearheading AI with strong earnings growth and continuous support from the government and venture capitalists. It is because of these large-caps that the S&P’s large-cap index ended up achieving two straight years of 20%+ gains for the first time since 1998. These mega-cap tech companies have gained over 130% since January 2023 and are so substantial that they are starting to get less accessible to some retail investors.
24/7 Wall St. Key Points:
- AI stocks are trading at higher and higher valuations.
- Many of the top ones have reached prices where a stock split now looks very likely
- These stock splits could drive even more gains down the line. In the meantime, grab our free “The Next NVIDIA” report. It includes a software stock with 10X potential.
Of course, people can still buy fractional shares, but a stock split makes things look like a much better deal, and shareholders are happy to see any stock split go through. Stock splits have shown significant impacts on mega-cap tech stocks. For example, Nvidia (NASDAQ: NVDA) went through a 10-for-1 stock split in June 2024 when its shares topped $1,200. The announcement caused NVDA to jump 7% at the opening bell the day after.
Let’s look at two AI stocks that could go through something similar this year:
Microsoft (MSFT)
Microsoft (NASDAQ: MSFT) has sparked a lot of buzz since the billions it poured into OpenAI turned into a great investment. It still has significant amounts of leverage over OpenAI and OpenAI has been using Microsoft’s cloud products in exchange for the investments it has made. That said, Microsoft recently lost its exclusive cloud provider status after Stargate, but it’s unlikely that this train will slow down. Microsoft still retains its Right of First Refusal (ROFR), and OpenAI’s APIs will remain exclusive to Azure. The revenue-sharing agreements are also intact, and Microsoft has the right to use OpenAI’s intellectual property in its products.
Microsoft is riding on a wave of strong financial performance. Q1 2025 revenue came in at $65.6 billion, up 16% year-over-year; net income grew 11% and reached $24.7 billion. The stock itself hasn’t been too hot compared to most other AI stocks, but there’s solid reason to believe that it could end this year on a stronger note.
The stock is up 6.6% year-to-date already. And even without Stargate, this is a behemoth that can fund its own AI expansion. It is committing $80 billion in AI data center capex this fiscal year alone. That’s 80% of Stargate’s first tranche.
All that said, MSFT hasn’t done a stock split since 2003. Eight of its nine total stock splits were in the 1990s, but there’s a good chance we could see the tenth one this year due to all the momentum.
The most bullish analyst thinks MSFT can go up to $600.
Meta Platforms (META)
Meta Platforms (NASDAQ: META) was in the doldrums back in 2022, and the stock went well below $100 before it recovered. It managed to pull off a stellar recovery since then as investors saw the solid profits it was able to bring in from its Family of Apps segment. More recently, Meta seems to have found that spending those profits on AI instead of its metaverse project is something shareholders love a lot more.
It is now up over 63% in just the past year alone and trades at $625 as of writing. The company has also posted $40.6 billion in revenue, up 19% year-over-year, whereas its operating margin expanded to 43%. EPS grew by 37% to $6.03.
Meta AI has reached 600 million monthly active users and recently invested $10 billion in Databricks to boost its position in enterprise AI. You’ve probably heard about it testing AI users on its platforms, which likely won’t happen due to the backlash, but you can’t deny that Meta is now one of the frontrunners in AI.
If 2025 turns out to be a good year for the AI industry, META stock could gain much more. Raymond James raised their price target to $725, and many other major analysts have it right in that range. It also has an $811 price target from Rosenblatt. if the $55-60 billion expected capex this year starts boosting the top line more, I think META could surpass even those targets.
Meta Platforms is the only Magnificent Seven stock that has never split its stock. That may no longer be the case this year if it keeps gaining.
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