Several technology companies have recently gone through stock splits. Some of the more notable stock splits in tech circles in recent memory have involved members of the “Magnificent Seven.” Tesla, Nvidia, Amazon, the alphabetAnd apple.
While there are many upcoming stock splits to be aware of, there is one artificial intelligence (AI) company that I think could be next in line: Service Now (NYSE: NOW ).
Let's explore why ServiceNow makes a great stock dividend 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 distributions.
Stock splits are essentially a form of financial engineering. The number of outstanding shares increases in proportion to the dividend. For example, in a 5-for-1 split, there will be five times as many shares after the split.
As a result, the share price of the stock in question falls below that multiple. This dynamic means that the market cap of a stock split does not inherently change.
Why will ServiceNow split its stock?
One of the most common reasons a company decides to split its stock is because the shares have risen significantly over a relatively short period of time. As a result, most retail investors consider shares expensive and out of reach.
Again, even though the stock split does not change the value of the company, investors consider the shares cheaper because the stock price is now lower. After that, a stock split is usually followed by a new pool of investors.
Since its initial public offering (IPO) in 2012, ServiceNow shares have risen 2,970%. Additionally, as AI has become a focal point in technology stocks over the past 18 months, ServiceNow's shares have risen 77%.
With a share price of $755, ServiceNow is not a stock. Watch cheap. Considering that the company has never split its shares and that secular themes are dominating the AI landscape, now may be a unique opportunity for ServiceNow to follow in the footsteps of its larger tech peers. Because there are more benefits to be had.
Should you invest in ServiceNow stock?
It is very important for investors to understand that the share price alone is not what determines whether a stock is overvalued or undervalued. In fact, the chart below illustrates that ServiceNow is trading at a massive discount on a price-to-sales (P/S) basis when benchmarked against other SaaS growth stocks.
After analyzing the above data, it is a legitimate case that ServiceNow is undervalued despite its seemingly inflated share price.
Another way to look at this discrepancy is that it's not the number of shares you own that matters. This is the money you are putting to work. It is almost certainly a better idea to own one share of $1,000 stock than 1,000 shares of $1 stock. Generally, the share price reflects the sentiment of the business.
As for ServiceNow, there's another reason I see the company as a potential stock split opportunity. As I mentioned recently, ServiceNow is not as well-known as its competition in the technology and AI arenas. A stock split would be a good way for a company to make headlines and potentially get on the radar of a wider group of investors.
Now, with that said, I'm not suggesting that ServiceNow should use the stock split as a PR stunt to juice its value. Investors should buy shares in ServiceNow based purely on solid business results.
Over the past several quarters, ServiceNow has made rapid strides in the AI world and it's showing 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 him. MicrosoftNvidia, and International Business Machine. I see these as important stepping stones to new sales opportunities for further lead generation and long-term growth.
At the end of the day, ServiceNow is a solid investment opportunity regardless of distribution. Now it looks like getting some shares and be ready for the long term as the growth story unfolds.
Should you invest $1,000 in Service Now?
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Suzanne Frey, an Alphabet executive, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, is a member of the board of directors of The Motley Fool, an Amazon subsidiary. Adam Spatico 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 International recommends Business Machines and the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a Disclosure Policy.
Prediction: This will be the next artificial intelligence (AI) company to split its stock was originally published by The Motley Fool.