On Aug. 28, Wall Street held its breath as the world’s most important artificial intelligence (AI) company reported second-quarter earnings. I’m talking about Nvidia (NASDAQ: NVDA), of course. While each member of the “Magnificent Seven” is seen as an indicator for the direction of all things AI, Nvidia has emerged as perhaps the industry’s end-all-be-all barometer.
But fear not! Once again, Nvidia silenced the doubters after posting yet another spectacular earnings report. However, while combing through the financial and operating metrics, I discovered one announcement that left me a little perplexed.
Namely, Nvidia’s board of directors approved an additional $50 billion in share repurchases (this comes on top of a remaining $7.5 billion from a prior buyback program). There’s a general notion that stock buybacks can be quite favorable for investors. But in the case of Nvidia, I just don’t get it.
Below, I’ll break down some reasons why I think Nvidia announced the buyback and why I do not see this move as a reason to buy the stock right now.
Is Nvidia’s buyback a distraction?
One of the bigger announcements from Nvidia this year was the company’s 10-for-1 stock split, which occurred back in June. Since early September 2022, shares of Nvidia have risen over 750%. As the stock price eclipsed $1,000 per share, building a position in Nvidia became more of a hurdle for some investors.
Sometimes, a company will choose to split its stock following these significant rises in the share price. Although a stock split does not inherently change a company’s market capitalization, the lower split-adjusted price is often perceived as less expensive and may inspire investors to buy. As a result, a stock could actually become more expensive following a split as a larger body of investors starts to pour in.
This isn’t exactly the case with Nvidia stock, though. Since shares began trading on a split-adjusted basis on June 10, Nvidia stock has declined by about 2% (as of market close on Sept. 2). I’ll concede that a 2% drop is not a reason to panic. But with that said, I am a little…
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