Nvidia stock buybacks could come from $270 billion ‘cash gusher’

AI chip leader Nvidia will have plenty of choices in the coming years and shareholders will be rewarded, technology analysts predict.

Ben Reitzes, managing director and head of technology research at Melius Research, told CNBC on Wednesday that Jensen Huang’s Nvidia has mastered a “full stack” approach with its hardware and software, giving it a key advantage in AI.

“What they’ve done is they’ve built a computer language and an ecosystem that allows you to monetize AI, and obviously they’re killing it,” he said.

Reitzes has a $160 price target on Nvidia stock, implying a 30% gain from Friday’s closing price. Despite a continued selloff that began earlier this month, shares have climbed 150% so far this year after more than tripling in 2023. Of the 7 beautiful stocks he covers, Nvidia has the most upside potential, he added.

Another big advantage Nvidia has over its competitors is its annual cadence of innovative new products, Reitzes said. This means developers and customers will know where Nvidia is heading and can budget upgrades accordingly.

“And they’re running 150 miles an hour while everyone else is running 100 miles. It’s going to be hard to catch up with these guys,” he said.

Given Nvidia’s advantage in the booming AI space, Melius Research predicts the company will generate $270 billion in cash over the next three years, potentially paving the way for huge returns for shareholders.

Management may not be willing to tout the possibility of stock buybacks because those are often associated with older companies, Reitzes said. But in his eyes, it’s obvious.

“Nobody talks about it, and when you create the model that we do, it makes a lot of money,” he said. “And they can’t do anything. This government won’t let them buy anything big. They can’t invest that much in R&D. It’s just not possible. So we have to get it as shareholders.”

Certainly, Nvidia has returned capital to shareholders. In August, it announced a $25 billion buyback program. And last month, Nvidia increased its quarterly cash dividends by 150%, from $0.04 per share to $0.10, the equivalent of $0.01 per share after the split.

Nvidia declined to comment on the possibility of further share buybacks.

For his part, Reitzes was quick to point out that any future buybacks would not imply that Nvidia has stopped growing. “It’s not an insult to buy back stock if you have nothing else to do.”

Nvidia’s recent financial results show that its ability to generate cash is accelerating. In the fiscal year ending in January, Nvidia’s net cash from operating activities jumped to $28.1 billion, up from $5.6 billion the year before.

And in the first quarter ended in April, net cash provided by operating activities was $15.3 billion, already more than half of last year’s total.

Meanwhile, Huang told investors last week that Nvidia would remain the gold standard for AI training chips, fearing that competitors would eat into its market share.

The rollout of Nvidia’s Blackwell system later this year will only solidify that lead, he said Wednesday at the company’s annual shareholder meeting.

“The Blackwell architectural platform will probably be the most successful product in our history and even in the entire history of computing,” Huang said.

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