Nvidia's move to buy back $25 billion of its shares after its stock more than tripled this year caught some investors off-guard, even as they cheered a stellar second-quarter report.
The company's shares touched a record high on Thursday, a day after it blew past expectations with its quarterly revenue forecast as an artificial-intelligence boom drove demand for its chips.
Nvidia shares, which rallied in the days leading up to its report, climbed more than 6 per cent on Thursday but pared gains to end the day little changed.
However, the company's stock buyback – the fifth-biggest repurchase announcement among US-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 are up 220 per cent in 2023, leaving investors searching for the reasons behind the company’s move.
"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.
"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 ploughed back into the company.”
Daniel Morgan, a senior portfolio manager at Synovus Trust, which owns Nvidia shares, said the move "comes as a surprise" given that Nvidia is "a hot growth tech name", as opposed to companies with sluggish financial performance growth that turn to buybacks to help prop up earnings per share.
"The message seems to be that [Nvidia's] management believes that their stock is undervalued," Mr Morgan said.
For some investors, an "undervalued" Nvidia might be a difficult message to stomach. 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, according to Refinitiv Datastream.
"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, chief executive and lead portfolio manager at Plumb Funds, which has Nvidia as one of its largest holdings.
However, Mr Plumb said the company might be limited in how it can use its resources after its deal to buy semiconductor designer Arm Holdings collapsed last year amid regulatory concerns.
"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," Mr Plumb said.
"So, what are they going to do with their cash?"
Nvidia spent about 27 per cent 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.
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 planned to continue repurchases this fiscal year.
Despite the staggering dollar amount, Nvidia's buyback amounted to only 2.1 per cent of its market value of about $1.2 trillion as of Wednesday.
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 ploughed back into the company
King Lip,
chief strategist at Baker Avenue Wealth Management
That is less than the historic 2.58 per cent 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.
Meanwhile, several other megacap technology and growth companies have announced even bigger buybacks this year: Apple at $90 billion, Alphabet at $70 billion and Meta Platforms at $40 billion.
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 US public equity advisory at Houlihan Lokey.
Some investors welcomed Nvidia's buyback decision.
"It’s a show of confidence," said Francisco Bido, senior portfolio manager for F/M Investments' large cap focused fund, which holds Nvidia shares.
"If they had better use for [the cash], I am pretty sure they would have done it."
THE CLOWN OF GAZA
Director: Abdulrahman Sabbah
Starring: Alaa Meqdad
Rating: 4/5
WHAT IS A BLACK HOLE?
1. Black holes are objects whose gravity is so strong not even light can escape their pull
2. They can be created when massive stars collapse under their own weight
3. Large black holes can also be formed when smaller ones collide and merge
4. The biggest black holes lurk at the centre of many galaxies, including our own
5. Astronomers believe that when the universe was very young, black holes affected how galaxies formed
UAE currency: the story behind the money in your pockets
Killing of Qassem Suleimani
Company%20profile
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NO OTHER LAND
Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
UFC%20FIGHT%20NIGHT%3A%20SAUDI%20ARABIA%20RESULTS
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Switching%20sides
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What is the FNC?
The Federal National Council is one of five federal authorities established by the UAE constitution. It held its first session on December 2, 1972, a year to the day after Federation.
It has 40 members, eight of whom are women. The members represent the UAE population through each of the emirates. Abu Dhabi and Dubai have eight members each, Sharjah and Ras al Khaimah six, and Ajman, Fujairah and Umm Al Quwain have four.
They bring Emirati issues to the council for debate and put those concerns to ministers summoned for questioning.
The FNC’s main functions include passing, amending or rejecting federal draft laws, discussing international treaties and agreements, and offering recommendations on general subjects raised during sessions.
Federal draft laws must first pass through the FNC for recommendations when members can amend the laws to suit the needs of citizens. The draft laws are then forwarded to the Cabinet for consideration and approval.
Since 2006, half of the members have been elected by UAE citizens to serve four-year terms and the other half are appointed by the Ruler’s Courts of the seven emirates.
In the 2015 elections, 78 of the 252 candidates were women. Women also represented 48 per cent of all voters and 67 per cent of the voters were under the age of 40.
Tips for newlyweds to better manage finances
All couples are unique and have to create a financial blueprint that is most suitable for their relationship, says Vijay Valecha, chief investment officer at Century Financial. He offers his top five tips for couples to better manage their finances.
Discuss your assets and debts: When married, it’s important to understand each other’s personal financial situation. It’s necessary to know upfront what each party brings to the table, as debts and assets affect spending habits and joint loan qualifications. Discussing all aspects of their finances as a couple prevents anyone from being blindsided later.
Decide on the financial/saving goals: Spouses should independently list their top goals and share their lists with one another to shape a joint plan. Writing down clear goals will help them determine how much to save each month, how much to put aside for short-term goals, and how they will reach their long-term financial goals.
Set a budget: A budget can keep the couple be mindful of their income and expenses. With a monthly budget, couples will know exactly how much they can spend in a category each month, how much they have to work with and what spending areas need to be evaluated.
Decide who manages what: When it comes to handling finances, it’s a good idea to decide who manages what. For example, one person might take on the day-to-day bills, while the other tackles long-term investments and retirement plans.
Money date nights: Talking about money should be a healthy, ongoing conversation and couples should not wait for something to go wrong. They should set time aside every month to talk about future financial decisions and see the progress they’ve made together towards accomplishing their goals.
SPEC%20SHEET%3A%20APPLE%20IPHONE%2015%20PRO%20MAX
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Killing of Qassem Suleimani
GAC GS8 Specs
Engine: 2.0-litre 4cyl turbo
Power: 248hp at 5,200rpm
Torque: 400Nm at 1,750-4,000rpm
Transmission: 8-speed auto
Fuel consumption: 9.1L/100km
On sale: Now
Price: From Dh149,900
Section 375
Cast: Akshaye Khanna, Richa Chadha, Meera Chopra & Rahul Bhat
Director: Ajay Bahl
Producers: Kumar Mangat Pathak, Abhishek Pathak & SCIPL
Rating: 3.5/5
Results
Catchweight 60kg: Mohammed Al Katheeri (UAE) beat Mostafa El Hamy (EGY) TKO round 3
Light Heavyweight: Ibrahim El Sawi (EGY) no contest Kevin Oumar (COM) Unintentional knee by Oumer
Catchweight 73kg: Yazid Chouchane (ALG) beat Ahmad Al Boussairy (KUW) Unanimous decision
Featherweight: Faris Khaleel Asha (JOR) beat Yousef Al Housani (UAE) TKO in round 2 through foot injury
Welterweight: Omar Hussein (JOR) beat Yassin Najid (MAR); Split decision
Middleweight: Yousri Belgaroui (TUN) beat Sallah Eddine Dekhissi (MAR); Round-1 TKO
Lightweight: Abdullah Mohammed Ali Musalim (UAE) beat Medhat Hussein (EGY); Triangle choke submission
Welterweight: Abdulla Al Bousheiri (KUW) beat Sofiane Oudina (ALG); Triangle choke Round-1
Lightweight: Mohammad Yahya (UAE) beat Saleem Al Bakri (JOR); Unanimous decision
Bantamweight: Ali Taleb (IRQ) beat Nawras Abzakh (JOR); TKO round-2
Catchweight 63kg: Rany Saadeh (PAL) beat Abdel Ali Hariri (MAR); Unanimous decision
Labour dispute
The insured employee may still file an ILOE claim even if a labour dispute is ongoing post termination, but the insurer may suspend or reject payment, until the courts resolve the dispute, especially if the reason for termination is contested. The outcome of the labour court proceedings can directly affect eligibility.
- Abdullah Ishnaneh, Partner, BSA Law
