This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Key Points
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Nvidia's $60 billion repurchase program is unprecedented.
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The program shows that the company has hit the limit of investing in growth.
Nvidia (NASDAQ: NVDA) released earnings today, and the market largely shrugged at the results. Shares ended the day flat, falling by a couple of percentage points after hours.
When you look at the top-line numbers, everything appears positive. The company beat analyst expectations for revenue by around $500 million, with sales growing by 56% year over year. But when you dig into the forecast for upcoming quarters, the situation turns more gloomy. That has investors wondering how they should digest another big piece of news released today: A record-breaking $60 billion share buyback program.
Should you be excited about Nvidia's massive share repurchase plan? You might be surprised by the answer.
Share repurchases don't always create shareholder value
Let's talk about why companies conduct share repurchases in the first place. In theory, companies understand their specific markets and situations better than outsiders. Therefore, executives can sometimes tell when the intrinsic value of their business is above the current market price for their stock. By repurchasing stock, the company is essentially investing in itself, buying back shares for less than the company believes they should be worth.
Given this, share repurchases should often create extra value for investors. After all, the company is buying an asset for less than it's worth -- a wise investment strategy that nearly every investor tries to employ. In practice, however, share buybacks can also destroy shareholder value, because they are sometimes done for purposes other than value creation.
Many businesses -- especially technology companies like Nvidia -- give their workforce stock options to incentivize creating value for the company. These stock options typically require selling more stock, diluting shareholders along the way. Many companies create share buyback programs not because their stock prices are cheap, but to compensate for these share sales.
Other times, companies employ share buybacks simply because they have nowhere left to invest their capital. Companies with huge cash flows but limited growth opportunities can get stuck in this trap, buying back stock at high prices despite relatively low value in doing so.
Is Nvidia destroying shareholder value by buying back $60 billion in stock?
Which is the case for Nvidia, then? It's worth noting that Nvidia has already been purchasing stock worth tens of billions of dollars.
"During the first half of fiscal 2026, NVIDIA returned $24.3 billion to shareholders in the form of shares repurchased and cash dividends," the company announced. Nearly $15 billion remains under the previous share repurchase program. That figure should be added to the $60 billion in new authorizations announced this quarter.
Since Nvidia stock has risen by 40% over the past year alone, these repurchases have created positive shareholder value for now. Nvidia is generating more than $25 billion in free cash flow every quarter, with quarterly capital expenditures of just $1 billion to $2 billion. That leaves plenty of cash to direct toward share repurchases.
Here's the problem: Nvidia's forecast looks surprisingly weak.
Its sales forecast for the next quarter came in $6 billion below consensus analyst expectations. And according to Bloomberg, the "forecast excluded data center revenue from China, a market where Nvidia has struggled with US export restrictions and opposing pressure from Beijing."
Additionally, Nvidia's return on equity has been an astounding 100% or more in recent quarters. While buying back stock could have a positive effect, it's possible that this move creates an overall drag on returns when compared to investing the spare cash in growth-boosting projects. Except, that is, if Nvidia can't find enough uses for its cash, which appears to be the case today.
Whether or not Nvidia's share buybacks create value over time remains to be seen. But the main takeaway here is that Nvidia is producing huge amounts of cash. Yet despite operating in a massive growth market, the company seemingly has few extra places to put that cash. Instead of letting it pile up on the balance sheet, the company is opting to return it to shareholders through buybacks.
So while executives are no doubt excited about the company's future, these repurchases shouldn't be considered an investment in the traditional sense. That is, Nvidia likely isn't buying its stock back because it looks cheap from an insider's perspective. It's doing so because it has already reached its maximum ability to reinvest back into the business.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
