NVIDIA Corporation NVDA has shattered bubble fears this year, sending the company’s shares soaring by more than 100%. But NVIDIA shares have faced volatility recently after the tech giant cut spending on artificial intelligence (AI) and the company’s latest quarterly results failed to meet expectations.
However, NVIDIA’s latest share buyback plan is expected to please earnings-focused investors. So, is now the right time to buy NVIDIA stock? Let’s take a look –
NVIDIA Stock – Share Buyback Plan
NVIDIA has not changed its quarterly dividend but recently authorized a new $50 billion share repurchase program. However, share repurchases are not new to NVIDIA: The company authorized $25 billion in share repurchases in August 2023 and has repurchased about $15.4 billion worth of its own shares in the first half of fiscal 2025.
NVIDIA’s board can afford to buy back shares because the company generates significant cash flow, and the company’s new buyback plan is now the third-largest in the S&P 500. Apple Inc. AAPL has bought back about $91 billion worth of its own stock over the past year, according to FactSet, while Alphabet Inc. GOOGL has bought back about $63 billion worth of stock.
Share buybacks – a good sign for NVIDIA
Share buybacks are generally a sign of healthy corporate management because they reduce the number of shares outstanding and increase the value of remaining shares, which shareholders will be pleased to see.
NVIDIA’s new $50 billion in share repurchases and remaining $7.5 billion in stock repurchase authorization may represent less than 2% of the company’s market cap, but it signals management’s optimism about NVIDIA’s future business prospects.
Will the stock price rise after the buyback? A reduction in the number of shares outstanding often leads to a higher stock price, so over the long term, we expect NVIDIA’s stock price to rise.
Investors would be wise to ignore the $279 billion drop in Nvidia’s market cap on Tuesday. The company’s stock price decline was not in a vacuum. The entire technology industry was down due to poor economic data. In fact, Nvidia’s stock has been trading above its 200-day moving average (DMA) since the start of the year, indicating a long-term upward trend.
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Reasons to be bullish on NVIDIA stock
Being the world leader in graphics processing units (GPUs) bodes well for NVIDIA, whose CEO Jensen Huang recently said that $1 trillion worth of data centers will be shifting from central processing units (CPUs) to GPUs.
In particular, according to Precedence Research, the global GPU market size is expected to grow from $75.77 billion in 2024 to $1,414.39 billion by 2034, at a compound annual growth rate of 13.8%.
GPU Market Size 2023-2034 (USD Billion)
Image source: Precedence Research
Nvidia’s strong position in AI should lead to a rise in the company’s stock price: MarketsandMarkets said it expects the AI industry to grow from $214.6 billion this year to $1.3391 trillion by 2030.
The launch of its cutting-edge Blackwell AI chips later this year will likely put any doubts about Nvidia to rest, as Blackwell is not just a GPU, but its infrastructure platform will be able to deliver higher AI throughput than the current Hopper platform.
NVIDIA’s efforts to tap into the growing gaming and industrial metaverse sectors have also been a tailwind for the company, which is why the Zacks Consensus Estimate for NVIDIA’s earnings per share is $2.76, up 73.6% year over year (Read More: Best Chip Stocks After NVIDIA Earnings: NVDA, AMD or INTC?).
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Fundamentally, NVIDIA is becoming more efficient at generating profits. After all, NVIDIA stock has a return on equity (ROE) of nearly 120%, compared to an ROE of 73.2% for the semiconductor industry. An ROE above 100% indicates that a company’s net income is greater than its equity, or that the company is performing very well.
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NVIDIA Stock is High – Here’s How to Trade It
Despite the upside, buying Nvidia stock could burn a hole in your wallet: Strong demand for AI models and Nvidia’s dominance in the GPU market have propelled its stock price higher.
That’s because, according to price-to-earnings ratios, NVIDIA shares are currently trading at 43.2 times forward earnings, compared with 18.2 times forward earnings for NVIDIA’s rivals and industry peers.
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Therefore, investors should wait for the right entry point and buy on the dip. Those who invested in NVIDIA should hold on as this stock is for the future and AI is the next big trend in the technology sector (Read more: 2 AI Stocks that could be the next NVIDIA).
NVIDIA has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
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