Nvidia’s $25 billion buyback ‘a head-scratcher’ for some shareholders

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.

“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 plowed back in to the company,” Lip added.

This report’s information was first seen on REUTERS; to read more, click this link.