{"id":20769,"date":"2023-08-26T17:38:56","date_gmt":"2023-08-26T17:38:56","guid":{"rendered":"https:\/\/www.africa-press.net\/eritrea\/?p=20769"},"modified":"2023-08-26T12:12:32","modified_gmt":"2023-08-26T12:12:32","slug":"nvidias-25-billion-buyback-a-head-scratcher-for-some-shareholders","status":"publish","type":"post","link":"https:\/\/www.africa-press.net\/eritrea\/all-news\/nvidias-25-billion-buyback-a-head-scratcher-for-some-shareholders","title":{"rendered":"Nvidia’s $25 billion buyback ‘a head-scratcher’ for some shareholders"},"content":{"rendered":"

Reporting by Lewis Krauskopf, Chibuike Oguh and Lance Tupper in New York Additional reporting by Echo Wang in New York and Stephen Nellis in San Francisco; Editing by Ira Iosebashvili and Matthew Lewis<\/b><\/p>\n

Africa-Press – Eritrea. <\/strong><\/span>Nvidia’s (NVDA<\/a>O) move to buy back $25 billion of its shares after its stock has more than tripled this year caught some investors off-guard, even as they cheered a stellar second-quarter report.<\/p>\n

Shares of Nvidia touched a record high<\/a> on Thursday, a day after the company blew past expectations with its quarterly revenue forecast<\/a> as an artificial-intelligence boom fueled demand for its chips.<\/p>\n

Nvidia shares, which had run up in the days leading up to its report, climbed more than 6% on Thursday but pared gains to end the day little changed. However, Nvidia’s stock buyback – the fifth-biggest repurchase announcement among U.S. -based companies this year, according to EPFR – surprised some investors. Companies commonly repurchase their stock as a way to return capital to shareholders.<\/p>\n

Such buybacks can benefit a stock’s price by reducing the supply of shares and increasing demand, and can boost earnings per share, a closely watched investor metric.<\/p>\n

But while shareholders often see buybacks as an encouraging sign when a company\u2019s stock appears cheap, Nvidia\u2019s shares have shot up some 220% in 2023, leaving investors searching for the reasons behind the company\u2019s move.<\/p>\n

“It’s a little bit of a head-scratcher,” said King Lip, chief strategist at Baker Avenue Wealth Management, which has $2.5 billion in assets under management and counts Nvidia as a top-10 holding.<\/p>\n

“As a shareholder, we like to see stock buybacks, but for a company like Nvidia that is growing so fast, you kind of want to see their earnings being plowed back in to the company,\u201d Lip added.<\/p>\n

As opposed to companies with sluggish financial performance growth that turn to buybacks to help prop up earnings per share, the announcement from Nvidia “comes as a surprise” given that they are “a hot growth tech name,” said Daniel Morgan, senior portfolio manager at Synovus Trust, which owns Nvidia shares.<\/p>\n

“The message seems to be that (Nvidia’s) management believes that their stock is undervalued,” Morgan said. For some investors, an “undervalued” Nvidia might be a difficult message to stomach.<\/p>\n

Nvidia shares traded at 45 times forward 12-month earnings estimates as of Wednesday compared with about 19 times for the overall S&P 500 (.<\/a>
\nSPX), according to Refinitiv Datastream.<\/p>\n

“Historically, you’d love it when a company is able to buy their stock back when it is depressed, but I don’t think anybody can make the case that it is at a depressed place right now,” said Tom Plumb, CEO and lead portfolio manager at Plumb Funds, which has Nvidia as one of its largest holdings.<\/p>\n

However, Plumb said, the company might be limited in how it can deploy its resources after its deal to buy semiconductor designer Arm Holdings Ltd collapsed last year<\/a> amid regulatory concerns.<\/p>\n

“They’re generating incredible amounts of cash, more than they need for their current investment strategy, and they’re prohibited from buying significant complementary businesses,” Plumb said.<\/p>\n

“So what are they going to do with their cash?”
\nNvidia spent about 27% of revenue on research and development last year, in line with rival chip companies. The company did not immediately respond to a request for comment.<\/p>\n

In its second-quarter earnings release on Wednesday, Nvidia said its board approved $25 billion in additional share repurchases “without expiration,” and that the company plans to continue repurchases this fiscal year.<\/p>\n

Despite the staggering dollar amount, Nvidia’s buyback amounted to only 2.1% of its nearly $1.2 trillion market value, or buyback yield, as of Wednesday.<\/p>\n

That is less than the historic 2.58% buyback yield for the overall S&P 500, when looking over one-year periods, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.<\/p>\n

Meanwhile, several other megacap tech and growth companies have announced even bigger buybacks this year: Apple (AAPL.<\/a>O) at $90 billion, Alphabet (GOOGL.<\/a>O) at $70 billion and Meta Platforms (META.<\/a>O) at $40 billion.<\/p>\n

Tech companies tend to prefer using cash for buybacks over dividends, because “if they are on the hook for a dividend every quarter that may hinder their ability to take advantage of growth opportunities,” said Daniel Klausner, head of U.<\/p>\n

S. public equity advisory at Houlihan Lokey. Indeed, some investors welcomed Nvidia’s buyback decision. “It\u2019s a show of confidence,” said Francisco Bido, senior portfolio manager for F\/M Investments’ large cap focused fund, which holds Nvidia shares.<\/p>\n

“If they had better use for (the cash), I am pretty sure they would have done it.”<\/p>\n

For More News And Analysis About Eritrea<\/a> Follow Africa-Press<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Reporting by Lewis Krauskopf, Chibuike Oguh and Lance Tupper in New York Additional reporting by Echo Wang in New York and Stephen Nellis in San Francisco; Editing by Ira Iosebashvili and Matthew Lewis Africa-Press – Eritrea. 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