Nvidia announced this week that it's growing its stock-buyback plan by a record $60 billion.
Nvidia Corp. has amassed a cash pile of $57 billion that keeps growing. So the chip maker announced this week that it's boosting its stock-buyback program by a company record of $60 billion.
That's drawing debate again on Wall Street over whether or not such a move makes sense for a $4 trillion company.
The chip maker (NVDA) repurchased $24.3 billion of stock during the first half of the fiscal year. The $60 billion authorization follows the $50 billion plan Nvidia was approved for when it updated the program last year. And that was double the $25 billion program from the prior year.
After the $50 billion program was announced, analysts were torn over whether or not it was a good idea. Now, the additional $60 billion plan is fueling further discussion.
Paul Meeks, managing director at Freedom Capital Markets, said he's not a fan of stock buybacks for fast-growing tech companies that have prospects to continue growing fast.
"Nvidia generates a ton of cash," doesn't have large capital expenditures and has made strategic acquisitions that have helped it boost its free cash flow, Meeks told MarketWatch.
When companies do stock buybacks, Meeks said he usually wonders if they could spend that money elsewhere such as on research and development for a new product pipeline, "because it will be important if and when AI infrastructure building slows."
Meeks pointed to Nvidia's recently launched, $3,500 Blackwell-powered robotics computer, called Jetson Thor, which makes it look like the company is "obviously positioning themselves to be a leader in what Jensen Huang likes to call physical AI," he said.
For a company with a $4 trillion market capitalization, Meeks said he doesn't "know if it matters that much" if Nvidia does a stock buyback, although it could potentially help avoid the dilution of stock exercises for employees with stock options.
"In this case, I'd rather see money spent elsewhere," he said.
The latest share-repurchase authorization for an additional $60 billion doesn't have a time limit, which leads Meeks to believe the company could be "doing it more for show - because they're so large of a company that even if they did do this, it's probably not going to lower their outstanding share count by that much."
Nvidia could be showing that, even though its stock is trading near an all-time high, "we still think it's going further," he added.
For Meeks, there is always concern that companies that conduct large stock repurchases don't have a sufficiently robust R&D pipeline.
"Probably the best example these days is Apple," Meeks noted, which hasn't seen strong revenue growth in four years. But the tech giant can still show double-digit growth in earnings per share "because it gets 5% or 6% of growth just by lowering its share count through stock repurchases."
In May, Apple Inc.'s $(AAPL)$ board of directors authorized an additional stock-repurchasing program of up to $100 billion of its common stock. That followed a $110 billion stock-buyback program the previous May.
In this case, "I hope Nvidia does" have a product plan, Meeks said, whether it be in autonomous driving or robots.
On the other hand, Louis Navellier, founder of money-management firm Navellier & Associates, said he sees Nvidia's stock buyback as a good idea - especially as the company's shares have seen a pullback amid geopolitical tensions with China and uncertainty over its business there. Navellier noted that Nvidia is one of his largest holdings.
Shares of Nvidia slumped a bit this week after it reported earnings results for its fiscal second quarter. A slight miss in its data-center segment and the decision not to include China in its outlook for the October quarter likely contributed to the modest drop.
Investors had also been anticipating clarity from the company over whether it would continue sales of its H20 chip to Chinese customers, after it was essentially banned from doing so by the Trump administration ahead of the start of the quarter. Earlier this month, the administration indicated that it would reverse the decision if Nvidia shared a cut of the revenue with the U.S. - but Nvidia Chief Financial Officer Colette Kress said on the company's earnings call that the government "has not published a regulation codifying such requirement."
Kress said on the call that Nvidia didn't factor in H20 revenue into its guidance due to ongoing "geopolitical issues," but that it could ship $2 billion to $5 billion in H20 chips in the period if those tensions ease.
Navellier told MarketWatch that the $60 billion plan could be the company exuding confidence in itself. "The board approves these buybacks all the time, and as the buybacks get bigger, it's a good sign," he said.
Aside from strong cash flow, Nvidia has "obscene" operating margins, Navellier said. Even though its margins are shrinking, "they're shrinking from 70%," he added.
Angelo Zino, an equity analyst at CFRA Research, told MarketWatch that his team sees cash return to shareholders becoming "a bigger story for investors over time as growth rates continue to decelerate and free-cash-flow generation improves."
Given that Nvidia is expected to generate more than $100 billion in free cash flow over the next 12 months, Zino said in written comments that the chip maker "will have additional cash generation to invest where it sees opportunities to do so."
Gil Luria, head of technology research at D.A. Davidson, shared a similar view on Nvidia's opportunity for investments.
"Since they are already investing in growth and are very limited in their ability to acquire other companies, a share buyback represents an important avenue to deploy the available capital," Luria said in written comments.
The growth that Nvidia has seen and now expects for its free cash flow means it "has to do something, as shareholders don't want to earn market interest rates on a giant, growing cash pile sitting on the balance sheet," said Dan O'Brien, chief operating officer at the Futurum Group, in written comments to MarketWatch. He added that he sees stock buybacks and private-market investments as "the most logical options" for the company as it decides where to allocate capital.
And with Wall Street's expectations for Nvidia's business and guidance remaining high, O'Brien said "there was no better way to convey Nvidia leadership's conviction in the long-term growth potential of the business" than to show that they see the stock being undervalued in the long run.
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