Posted on 08/26/2023 5:29:07 AM PDT by RoosterRedux
Nvidia's (NVDA.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.
Shares of Nvidia touched a record high on Thursday, a day after the company blew past expectations with its quarterly revenue forecast as an artificial-intelligence boom fueled demand for its chips. 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. 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.
But while shareholders often see buybacks as an encouraging sign when a company’s stock appears cheap, Nvidia’s shares have shot up some 220% in 2023, leaving investors searching for the reasons behind the company’s move.
[...]
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.
"The message seems to be that (Nvidia's) management believes that their stock is undervalued," Morgan said.
[...]
"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. "So what are they going to do with their cash?"
(Excerpt) Read more at reuters.com ...
I’ve seen this occurring more and more. The investors get screwed.
How, specifically?
How, specifically
…
Yes, how specifically? I have sizable share of NVDA.
How does this screw investors?
How do investors get screwed in a buyback?
Nonsense. Shareholder equity increases when a strong stock is bought back by the company, because the stock is less diluted. It’s better than dividends (which are taxable) as it provides enduring value.
Apple and Berkshire are two examples of strong well-managed companies doing this.
Warren Buffett has spoken extensively about tit.
Same here. NVDA is my largest holding and, needless to say, I’ve done quite well.
There are a couple of real idiots on this board who scream that the stock market is nothing but gambling. Such comments are typically from people who know nothing about investing but don't mind putting their ignorance on display.
Can you still buy graphics cards with all the AI development going on ? LOL
Yeah, a company’s duty is to maximize return to the owners. They’ve determined that spreading future returns over fewer shares is the best way to do that over other methods such as spending more in other things such as employees or new product development.
For the cynics, there is one other possibility. The insiders think the stock has peaked, and this is a way to cash out at the top without dumping shares on the market.
If you think the stock has peaked, you wouldn’t do a share buyback. These aren’t bought from insiders/mgmt but on the open market to reduce the total number of shares outstanding. It likely means that they think NVDA should do better than most other investments they could possibly spend their cash on.
Wilde: "A cynic is a man who knows the price of everything but the value of nothing."
We obviously have pedestrian investors on FR based on the comments to your post.
He’s spoken about it, but doesn’t really do much of it. There’s a financial discipline to Berkshire’s buyback strategy, according to book value. Comparing this to buying back stock of a company selling at 20x REVENUE is not wise.
I’ve been around this business for 50 years and manage investments myself for clients. If the cash buildup is so strong, make a special dividend out of it, but given the expense of R&D in this (don’t forget the need to build plants in this country - are they getting Government support in the handouts to the semiconductor industry for that? If so, why if they have this much extra cash?) it would be wiser to let the cash build for the time being. I remember when Intel was divined as the NVDA of it’s day and then Qualcomm. Cash is never a bad thing for a company to hold on to.
How quaint.
So, in answer to your point- Not if you were looking to stick it to the existing shareholders (and the company) in order to maximize your personal profit.
NVIDIA is going up like a rocket due to demand for its AI chips, so, yes, it likely is undervalued.
When a company buys its own shares in the open market, it benefits existing shareholders by increasing demand for their shares. People believe in what Jensen Huang has built, which is why the stock is trading near all time highs.
Issuing new shares dilutes the value of current shares.
A buyback does exactly the opposite.
You don’t need a copy of Graham & Dodd to learn how this works, simply look up buybacks in Investopedia.
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