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.