Nvidia Corp. made some astute stock buybacks last year ahead of a monster rally fueled by the artificial intelligence frenzy. Now the chipmaker is drawing attention because it stopped buying.
(Bloomberg) — Nvidia Corp. made some astute stock buybacks last year ahead of a monster rally fueled by the artificial intelligence frenzy. Now the chipmaker is drawing attention because it stopped buying.
After a three-year hiatus, Nvidia spent more than $10 billion repurchasing shares in the fiscal year that ended Jan. 29, a period that coincided with a precipitous drop in the price of the stock. That buying proved prescient, as Nvidia reached a $1 trillion market cap when shares surged to $410 at Tuesday’s close, more than double the average stock price during fiscal 2023.
The stock is up 0.7% in Wednesday trading.
The spending spree stopped this year, however, just as the stock’s gains began to turn parabolic on bets that Nvidia would be one of the biggest beneficiaries from a surge in investment in AI computing. Despite having more than $7 billion on its buyback authorization, Nvidia didn’t repurchase any shares in the first quarter, which ended on April 30. An Nvidia spokesperson declined to comment.
The buyback freeze, along with recent stock sales by company insiders like director Harvey Jones, acts as a warning sign for Bob Shea, chief investment officer at Dynasty Financial Partners.
“It tells you a fair bit about how Nvidia might be viewing its own stock and how the price could have gotten ahead of itself,” he said in an interview.
Even though Nvidia’s profit estimates have shot higher following a banner earnings report and forecast last month, the stock is still trading at nose bleed levels. It’s priced at 46 times earnings projected over the next 12 months, up from 25 times in July, according to data compiled by Bloomberg.
Read more: Nvidia Touches $1 Trillion Mark After Beating Rivals to AI
Buy Low, Sell High
Companies don’t always have perfect timing when it comes to buybacks. Meta Platforms Inc., for example, repurchased $14.4 billion of its stock in the third quarter of 2021 when shares were near a record high. The stock plunged the following year and while it has recovered some of the losses, it remains 41% from its September 2021 peak.
Nvidia’s buying was “very good timing,” according to Evercore ISI analyst C J Muse. “It certainly suggests they have a keen focus on price.”
To be sure, not all investors see the buyback pause as a sign that the stock may be overvalued. Nvidia could be holding off to keep more cash at the ready, according to Brian Mulberry, client portfolio manager at Zacks Investment Management.
“It makes sense to be able to invest in yourself going forward, to have some cash on the sidelines,” said Mulberry, whose firm owns the stock and remains bullish on Nvidia.
Tech Chart of the Day
Tesla Inc.’s record winning streak has propelled its relative strength index to 88, far above the level of 70 that signals to some technical analysts that a stock may have risen too far, too fast. The shares were down about 0.7% Wednesday, on track to break its record streak of gains. Tesla has added $240 billion in market value during its current streak, an amount that exceeds the worth of 90% of Nasdaq 100 companies, according to data compiled by Bloomberg.
Top Tech Stories
- Microsoft Corp.’s $69 billion acquisition of Activision Blizzard Inc. was temporarily blocked by a federal judge in California who said a temporary restraining order was necessary to maintain the status quo while the Federal Trade Commission challenges the deal.
- Tesla increased the starting price of its Model Y sports utility vehicles in the US for the third time in the past two months, adding $250 to the cost of the base model of its best-selling car.
- Advanced Micro Devices Inc. showcased its upcoming line of artificial intelligence processors, aiming to help data centers handle a crush of AI traffic and challenge Nvidia’s dominance in the burgeoning market.
- Samsung Electronics Co., the world’s biggest memory chipmaker, is giving staff in South Korea one Friday off each month in a bid to retain talent that increasingly values flexible work.
- Amazon.com Inc.’s cloud-computing arm said it resolved an outage that had disrupted a swath of companies and organizations, including Southwest Airlines Co. and New York’s transit agency.
- Companies across industries are asking for safe and reliable ways to use ChatGPT-like services, creating an opportunity for software developers far beyond generative-AI leaders such as OpenAI and Alphabet Inc.’s Google, a tech executive said.
–With assistance from Tom Contiliano and Subrat Patnaik.
(Updates stock moves at market open)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.