Several technology companies have recently undergone stock splits. Some of the more notable stock splits in the tech realm in recent memory include “Magnificent Seven” members Tesla, Nvidia, Amazon, Alphabet, and Apple.
While there are a number of upcoming stock splits to be aware of, there is one artificial intelligence (AI) company that I think could be next in line: ServiceNow (NYSE: NOW).
Let’s dig into why ServiceNow makes a compelling stock-split candidate and explore the investment merits of this 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 ratio in the split. For example, in a 5-for-1 split, there will be five times as many shares following the split.
As a result, the share price of the stock in question decreases by that same multiple. This dynamic means that the market cap of the stock-split stock does not inherently change.
Image source: Getty Images.
Why would ServiceNow split its stock?
One of the most common reasons that a company decides to split its stock is because shares have soared significantly over a relatively short time frame. As a result, most retail investors perceive shares as expensive and out of reach.
Again, although a stock split doesn’t change the value of the company, investors tend to view shares as cheaper because the stock price is now lower. Subsequently, stock splits are typically followed by a new pool of investors pouring in.
Since its initial public offering (IPO) in 2012, ServiceNow’s shares are up 2,970%. Moreover, since AI has become a focal point among technology stocks in the last 18 months or so, ServiceNow shares have risen 77%.
With a share price of $755, ServiceNow stock doesn’t look cheap. Considering the company has never split its shares and secular themes are fueling the AI landscape, now could be a unique opportunity for ServiceNow to follow in the footsteps of its larger tech peers as…
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