Nvidia (NVDA) falls behind S&P 500...Jim Cramer "Buy back shares"

▲ NVIDIA (NVIDIA, NVDA), US stock market, semiconductor stocks/AI generated image

A claim has emerged that Nvidia (Nvidia, NVDA) needs a $500 billion share buyback after falling behind the S&P 500 despite high earnings growth.

According to 24/7 Wall Street on September 2 (local time), CNBC host Jim Cramer argued that Nvidia should increase its existing share buyback limit fivefold. Citing Apple's (Apple, AAPL) strategy, he said, “Nvidia should announce a massive $500 billion share buyback and aggressively acquire 10% of the company's stock.” The remaining amount in Nvidia's current share buyback limit is approximately $99 billion.

Cramer assessed that the market is not adequately reflecting Nvidia's growth potential. He stated, “It's absurd that Nvidia, with its massive order backlog and high profitability, is trading at 23 times its estimated earnings for this year.” Since October 28 last year, Nvidia's stock price has risen by 8.2%, falling short of the S&P 500's 10.7%. It was pointed out that during the same period, Nvidia significantly raised its revenue outlook, but its stock price increase was relatively limited.

Cash generation capabilities support the argument for a large-scale share buyback. Nvidia's Q2 FY2027 revenue increased by 105.9% year-over-year to $96.22 billion. The adjusted gross profit margin was 75%, and free cash flow reached $21.34 billion. The company returned a total of $26 billion to shareholders in the same quarter, including $20 billion in share buybacks and $6 billion in dividends.

However, realizing a large-scale share buyback would also require bearing immense investment burdens. Nvidia's supply-related obligations have grown to $279 billion, a significant portion of which is related to memory needed for the next-generation Vera Rubin. Warranty obligations to AI cloud and data center partners also amount to $108.5 billion. CFO Colette Kress stated that 60% of free cash flow has been returned to shareholders this year. The company plans to increase the return of excess free cash flow, excluding strategic investments.

Cramer's proposed $500 billion share buyback plan is not a plan announced by Nvidia. Actual implementation requires board approval. Cramer suggested aggressive share buybacks as a way to change the market's undervaluation, emphasizing, “Do it. It could be the best investment Nvidia has ever made.”

[Key Article Summary]

-Jim Cramer argued that Nvidia should expand its share buyback limit fivefold to undertake a $500 billion buyback.

-Nvidia reported Q2 FY2027 revenue of $96.22 billion and free cash flow of $21.34 billion.

-Nvidia's supply-related obligations amount to $279 billion, making capital allocation between large-scale share buybacks and AI investments a key variable.

*Disclaimer: This article is for investment reference only, and we are not responsible for investment losses based on it. The content should be interpreted for informational purposes only.*