Should Nvidia buy back 10% of its stock? The truth behind the $500 billion share repurchase rumor

▲ Nvidia (NVDA)/AI generated image ©

Wall Street's attention is focused on Nvidia, which is demonstrating unprecedented cash generation capabilities, as claims emerge that it should embark on a massive $500 billion share repurchase, amounting to 10% of its total outstanding shares.

According to cryptocurrency specialized media Watcher.Guru on September 3 (local time), Jim Cramer, host of CNBC's Mad Money, argued that Nvidia should increase its existing share repurchase authorization by five times to buy back approximately 10% of its shares. Based on Nvidia's Q2 fiscal year 2027 earnings report, the remaining limit for existing share repurchases is approximately $99 billion. Cramer's proposal is a bold idea to instantly raise the existing amount to $500 billion. Cramer urged aggressive shareholder returns on the broadcast, stating that there is no better investment than Nvidia itself.

Cramer pointed out that Wall Street is currently not adequately reflecting Nvidia's explosive order backlog and high-profit margins in its stock price. He explained that it is unreasonable for Nvidia, despite having phenomenal order volumes and immense profitability, to trade at around 23 times its estimated price-to-earnings (PER) ratio for this year. Indeed, since late October last year, Nvidia's stock price has only risen by 8.2%, falling short of the S&P 500 index's 10.7% gain over the same period. Analysis suggests that the stock's performance lags behind the extent of its fundamental improvements.

Looking solely at performance indicators, Nvidia's financial capacity seems to support such a proposal. In the second quarter of fiscal year 2027, Nvidia achieved sales of $96.22 billion, a 105.9% surge year-over-year, and its free cash flow (FCF) reached $21.34 billion. During the same period, the company returned a record-breaking total of $26 billion to shareholders, including $20 billion in share repurchases and $6 billion in dividends. CEO Jensen Huang also emphasized that artificial intelligence (AI) has moved past an inflection point, entering an era where computations generating real profit and productivity are directly equivalent to revenue.

On the other hand, substantial financial burdens that hinder a massive share repurchase also exist. Supply obligations, including memory supply contracts for the next-generation Vera Rubin platform, have swelled to $279 billion, and the upper limit for warranty obligations linked to AI cloud and data center partners also stands at $108.5 billion. Colette Kress, Chief Financial Officer (CFO), stated that the company has returned 60% of its cumulative free cash flow to shareholders this year, exceeding its target of returning more than 50% of free cash flow. She also announced a policy to return excess free cash flow, excluding strategic uses, in the future, indicating that strategic capital investment remains the top priority.

Ultimately, Cramer's half-trillion-dollar share repurchase proposal is merely a personal suggestion, not official company guidance, but it is drawing market attention as the stock price approaches the $217 mark. The key point of observation for the market next quarter will be to see what trajectory Nvidia will take for shareholder returns amidst its immense cash generation capabilities and large-scale strategic investment expenditures.

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