Many technology companies have witnessed this recently Stock split. Some of the most high-profile tech stock splits in recent memory involve members of the “Magnificent Seven.” Tesla, Nvidia, Amazon, the alphabetAnd apple.
While there are a number of upcoming stock splits that you should be aware of, there is one artificial intelligence (AI) company that I think could be the next: Service now (NYSE: NOW).
Let's dive into the reasons why ServiceNow is a compelling stock split candidate and explore the investment merits of the software-as-a-service (SaaS) leader.
How do stock splits work?
Before diving into ServiceNow specifically, investors should understand the basics of stock splits.
Stock splits are essentially a form of financial engineering. The number of outstanding shares increases by the split ratio. For example, in a 5-for-1 split, there would be five times as many shares as there were after the split.
As a result, the share price of the stock in question falls by the same multiple. This dynamic means that the market value of the split shares does not inherently change.
Why is ServiceNow splitting its stock?
One of the most common reasons a company might decide to split its stock is because the stock has risen significantly over a relatively short period of time. As a result, most retail investors see stocks as too expensive and out of reach.
Again, although a stock split does not change the value of the company, investors tend to view the shares as cheaper because the stock price is now lower. Later, a stock split is usually followed by a new group of investors flocking in.
Since its initial public offering (IPO) in 2012, ServiceNow shares have risen 2,970%. Furthermore, since AI became a focal point among tech stocks in the past 18 months or so, ServiceNow shares are up 77%.
With a stock price of $755, ServiceNow stock doesn't do that look cheap. Given that the company has never done a stock split and secular themes fuel the AI scene, now may be a unique opportunity for ServiceNow to follow in the footsteps of its larger tech peers as more gains appear to be in store.
Should you invest in ServiceNow stock?
It is very important for investors to understand that it is not the stock price alone that determines the value of a stock at over or under value. In fact, the chart below shows that ServiceNow is largely trading at a discount on a price-to-sales (P/S) basis when compared to other SaaS growth stocks.
After analyzing the data above, there is a legitimate argument that ServiceNow is undervalued despite its seemingly expensive stock price.
Another way to look at this dichotomy is that it's not the number of shares you own that matters; It's the amount of money you put into the business. Owning one share of a $1,000 stock is almost certainly a better idea than owning 1,000 shares of a $1 stock. In general, the stock price reflects company sentiment.
As far as ServiceNow is concerned, there's another reason why I see the company as a potential stock split opportunity. As she recently expressedServiceNow is not as well known in the technology and AI space as its competitors. A stock split would be a good way for the company to make headlines and perhaps be on the radar of a wider group of investors.
Now, however, I'm not suggesting that ServiceNow uses a stock split as a PR stunt to settle its price. Investors should purchase shares in ServiceNow based only on tangible business results.
Over the past few quarters, ServiceNow has moved quickly into the world of AI and it shows in the company's results. Revenue growth is accelerating thanks to impressive customer retention metrics as well as ServiceNow's ability to cross-sell additional products and services.
Moreover, the company has partnered with MicrosoftNvidia, and Universal business machines. I see these as important starting points for further lead generation and new sales opportunities for long-term growth.
Ultimately, ServiceNow is a solid investment opportunity regardless of the split. Now seems like a great time to buy some stocks and get ready to hold them for the long term as the growth story continues to unfold.
Should you invest $1,000 in ServiceNow now?
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Susan Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adam Spatacco He has positions at Alphabet, Amazon, Apple, Microsoft, Nvidia, Palantir Technologies, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Datadog, HubSpot, Microsoft, MongoDB, Nvidia, Palantir Technologies, ServiceNow, Snowflake, Tesla, and Workday. The Motley Fool recommends International Business Machines and recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has Disclosure policy.
Prediction: This will be the next artificial intelligence (AI) company to do a stock split Originally published by The Motley Fool