Nvidia (US:NVDA) has announced significant increases in share buybacks and dividends as it looks to spend its ever-increasing cash pile.
The AI computing company, the world’s largest by market capitalisation, said it would buy back another $80bn in shares, in addition to the $20bn (£14.9bn) returned to shareholders in the first quarter via buybacks and dividends.
Nvidia has been struggling to find enough investments to keep up with its growth. It spent just $6.3bn on research and development in the quarter, which was 60 per cent higher than the same period last year, but still only 8 per cent of revenue.
Without enough internal R&D, the company has been investing in the AI ecosystem and has agreed deals for multi-billion-dollar stakes in OpenAI and Anthropic, as well as investments in AI cloud CoreWeave (US:CRWV) and semiconductor manufacturer Intel (US:INTEL).
This strategy has been criticised by some as ‘circular financing’, but it has been profitable, with its “net gains from equity securities” boosting profit by $15.9bn. This was likely driven by Intel’s 400 per cent share price jump in the past year.
Nvidia’s results were always expected to be impressive given the scale of the AI investments from its ‘Big Tech’ customers in the past few weeks. However, the numbers still surprised Wall Street. In the first quarter, its revenue rose 85 per cent to $81.6bn, which was ahead of the $79bn expected by analysts.
The desperation to acquire Nvidia’s chips was reflected in the expanding operating margin, which rose 16 percentage points to 66 per cent.
Nvidia’s valuation has contracted in the past year on concerns about growing competition from custom-made AI chips, such as Google’s tensor processing units.
However, Nvidia’s shares have risen more recently, and its forward free cash flow yield has fallen back to 3.7 per cent, although it still trades at a discount to the wider market, which implies the market is expecting growth to slow down in the future.
History suggests that, like every other semiconductor company, this cycle will eventually end. The mooted after-hours reaction to the results suggests the market is still pricing this in, but in these earnings there is little evidence a slowdown is arriving soon.
