This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
By now, my hunch is that you've caught on to some of the major things influencing the stock market this year. As a refresher, mixed economic data, uncertainty surrounding policies from the Federal Reserve, and of course President Donald Trump's tariff agenda have combined to make a series of clouds shading what direction the markets might move next.
But even amid all of this uncertainty, some industries have proven resilient throughout the year. Within the broader technology sector -- which itself has had a tough year so far -- the communication services industry has held up relatively well. If you're unfamiliar with communication services, these are businesses that touch areas such as advertising, entertainment, and internet content consumption.
When you think about these categories, my guess is your mind rushes straight to Netflix -- and for good reason. As of the closing bell on June 5, shares of Netflix have gained 40% so far this year. That absolutely crushes the breakeven returns of the S&P 500 and Nasdaq Composite.
While Netflix remains a quality business, there is another streaming stock that has been quietly outperforming the competition. With shares up nearly 60% year to date, Spotify Technology (NYSE: SPOT) might be a company to put on your radar.
Below, I'll detail why streaming stocks have outperformed the broader market this year. From there, I'll cover why I think Spotify could be Wall Street's next big stock-split stock and explain how this process works for investors.
Why are streaming stocks crushing the market in 2025?
Perhaps the biggest factor weighing on growth stocks at the moment is how President Trump's tariff policies will shake out. Tariffs are taxes that are placed on goods imported or exported from the country. Usually, tariffs are used as a negotiation tactic in order to change policies with trade partners. While there can be strategic value to implementing tariffs, they can also lead to periods of higher costs (inflation) for businesses.
Unlike many companies in the technology landscape, streaming businesses don't have much to worry about when it comes to tariffs. For the most part, streamers rely on the consumption of digital content such as movies, television, music, or audiobooks. Given these companies don't have much in the way of physical manufacturing or rely on imported or exported goods, streaming is a relatively tariff-resistant business -- making them particularly attractive investments right now.
Why I see Spotify as a prime stock-split candidate
The chart below illustrates Spotify's stock price since its initial public offering (IPO). As investors can see, shares of the streaming giant are hovering near all-time highs.
Sometimes when a stock price starts to rise in an exponential fashion, investors will shy away from buying. Said another way, a high share price can be perceived as an expensive stock and investors will begin looking for alternatives.
Considering that Spotify has never split its stock, combined with its climbing share price, I see the company as an interesting stock-split candidate.
How do stock splits work?
Stock splits are a simple form of financial engineering. For argument's sake, let's say Spotify announced a 10-for-1 stock-split. How would this work? Essentially, Spotify's share price of $710 would be split tenfold. In other words, Spotify's split-adjusted stock price would be about $71. At the same time, however, the company's outstanding shares would rise by tenfold.
Given the stock price and the outstanding shares change by the same multiple, the market capitalization of Spotify would remain unchanged.
Should you buy Spotify stock right now?
If the valuation of the company doesn't change, what is the point of a stock split? As I alluded to above, when share prices go higher investors often perceive the stock as expensive -- regardless of what valuation multiples might suggest.
Given a stock split results in a seemingly lower (or less expensive) share price, they often result in a new cohort of investors pouring in and buying the stock. Ironically, this activity can actually fuel the market cap of the company higher on a post-split basis. This means that even if you own more shares at what appears to be a lower share price following a split, you might actually be investing in the company at a higher valuation.
With that in mind, let's explore whether Spotify is a good stock to buy right now -- regardless of whether or not the company chooses to split its stock.
SPOT PE Ratio (Forward) data by YCharts
Per the comparable company analysis pictured above, Spotify trades at a notable premium compared to other streaming and entertainment companies on a forward earnings basis.
In my view, Spotify is a pricey stock right now and the current momentum in share price has led to some notable valuation expansion. Normally, I would not chase at these levels -- as I'd view the stock as overvalued. However, given how sensitive the capital markets are right now on the tariff rhetoric and Spotify's proven resiliency in this environment, I'd consider scooping up shares on any dips that might occur.
In the long run, I see Spotify as a best-in-class opportunity in the streaming landscape and a stock deserving of a premium.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
