Here’s Why Nvidia’s New $50 Billion Buyback May Bolster the Bear Case for the Stock
Kristin Levine
Posted On August 30, 2024
Nvidia’s Earnings Surge, But Valuation Concerns Linger
Nvidia’s fiscal second-quarter earnings report showcased remarkable growth, with revenue soaring by 122% year over year to $30 billion and earnings per share skyrocketing by 168% to $0.67. However, these impressive results appear less significant when placed in the context of the company’s nearly $3 trillion market capitalization.
Share Repurchase Program: Insufficient Relative to Market Cap
Nvidia’s authorization of an additional $50 billion for share repurchases raises questions about the company’s valuation. While $50 billion is a considerable sum, it represents less than 2% of Nvidia’s market cap. In comparison, Apple’s $60 billion repurchase authorization in 2013 amounted to nearly 16% of its outstanding shares at the time.
Cash Balance and Market Cap Comparison
Nvidia’s cash, cash equivalents, and marketable securities currently total $34.8 billion, just over 1% of its market capitalization. This stands in contrast to Apple’s cash position of $147 billion in 2013, which exceeded a third of its market cap. The relatively small cash balance relative to market cap further suggests potential valuation concerns.
Timing of Repurchases Raises Questions
The timing of Nvidia’s share repurchase program also raises concerns. With shares trading at around 55 times earnings, the stock may have priced in its potential upside. Repurchasing shares at a potentially fair or inflated price may not be in shareholders’ best interests.
Business Performance Commendable, But Valuation a Concern
Despite Nvidia’s strong business performance, investors should remain cautious due to the stock’s valuation. The cyclical nature of the semiconductor industry and intense competition warrant some caution at Nvidia’s current price.
Recommendation: Consider Alternatives
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