Image Source: PixabayNVIDIA Corporation (NVDA – Free Report) crushed bubble fears this year and its shares surged more than 100%. However, NVIDIA’s stock price recently faced bouts of volatility after tech behemoths trimmed spending on artificial intelligence (AI) and the company’s latest quarterly results failed to meet high expectations.But it’s also true that NVIDIA’s newest stock buyback plan is expected to please income-oriented investors. So, is this the right time to buy the NVIDIA stock? Let’s have a look –
NVIDIA Stock – Share Repurchase Plan
NVIDIA hasn’t tampered with its quarterly dividends, but it recently authorized a fresh $50 billion share repurchase. However, stock buybacks aren’t new for NVIDIA. The company approved a $25 billion share repurchase in August 2023 and bought back stocks worth around $15.4 billion in the first half of its fiscal 2025.NVIDIA’s board of directors can afford to repurchase shares as the company has generated significant cash flows. NVIDIA’s new stock buyback plan is currently the third largest on the S&P 500. Apple Inc. (AAPL – Free Report) has repurchased shares worth around $91 billion over the past year, while Alphabet Inc. (GOOGL – Free Report) has repurchased some $63 billion in shares, per FactSet.
Stock Buyback – A Good Sign for NVIDIA
Share repurchases, in general, are an indication of a healthy corporate organization. This is because share repurchases lead to a decrease in the number of outstanding shares and an increase in the value of the remaining shares, which is a blessing for shareholders. NVIDIA’s new $50 billion stock buyback and the remaining $7.5 billion share repurchase authorization may be less than 2% of the company’s market capitalization. However, this shows that management is optimistic about NVIDIA’s future business prospects. Do share prices go up after a stock buyback? The reduction in the number of outstanding shares often leads to an uptick in share prices. So, it’s expected that NVIDIA’s shares should increase in the long run. It’s prudent for investors to ignore NVIDIA’s $279 billion market capitalization rout on Tuesday since its shares are not down on isolation. The broader tech sector fell due to discouraging economic data. In reality, the NVIDIA stock has been trading above the 200-day moving average (DMA) year to date, signifying a long-term uptrend.
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Why You Should Stay Bullish on the NVIDIA Stock
Being the worldwide leader in graphic processing units (GPUs) bodes well for NVIDIA. The company’s CEO, Jensen Huang, recently said that $1 trillion worth of data centers would migrate from central processing units (CPUs) to GPUs. Notably, the global GPU market size is projected to jump from $75.77 billion in 2024 to $1,414.39 billion by 2034 at a CAGR of 13.8%, according to Precedence Research.GPU Market Size 2023 to 2034 (USD Billion)
Image Source: Precedence ResearchNVIDIA’s strong positioning in the AI field should help its shares scale upward. MarketsandMarkets stated that the AI industry is estimated to expand from $214.6 billion in the current year to $1,339.1 billion by 2030.Launch of the cutting-edge Blackwell AI chips later this year would eventually squash any skepticism about NVIDIA. This is because Blackwell is more than just a GPU, its infrastructure platform can offer more AI throughput than the current Hopper platform. NVIDIA’s initiatives to enter the ever-growing gaming and industrial metaverse space are also a tailwind for the company. Hence, the $2.76 Zacks Consensus Estimate for NVIDIA’s earnings per share is up 73.6% from a year ago.
Image Source: Zacks Investment ResearchFundamentally, NVIDIA has been able to generate profits more proficiently. After all, NVIDIA stock’s return on equity (ROE) is nearly 120%, while the Semiconductor-General industry’s is 73.2%. An ROE above 100% shows that the company’s net income is greater than its equity or that the company’s performance is very strong.
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NVIDIA Stock is Expensive – Here’s How to Trade it
Despite the positives, buying NVIDIA’s shares may burn a hole in your wallet. The voracious demand for AI models and supremacy in the GPU market has made the NVIDIA stock pricey. This is because, per the price/earnings ratio, NVIDIA stock currently trades at 43.2X forward earnings. However, NVIDIA’s rivals or the peer group’s forward earnings multiple is 18.2X.
Image Source: Zacks Investment ResearchThus, investors should wait for the right entry point and buy on the dip. Those who have invested in NVIDIA should hang on to it since the stock is for the future, as AI is the next big thing in the technology space.NVIDIA has a Zacks Rank #3 (Hold). More By This Author:Top Medical Stocks To Hedge Against The September Effect 2 Small Caps Recently Upgraded To Outperform – Sunday, Sept. 13 Concrete & Aggregates Industry Stocks Thriving In Tough Times
