NVDA Will Produce Such A “Cash Gusher” That It Will Have To Buy Back Stock

https://fortune.com/2024/06/29/nvidia-stock-buyback-outlook-cash-pile-dividend-shareholder-returns-ai/

Paywall-surpassed version for the poors below.

Positions: leaps, lots of leaps.

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AI chip leader Nvidia will have an embarrassment of riches in the coming years, and shareholders will be rewarded, a tech analysts predicted.

Ben Reitzes, a 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 did is they built a computing language and an ecosystem that allows you to monetize AI, and obviously they’re killing it,” he said.

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

Another big advantage Nvidia has over rivals is its annual cadence of innovating new products, Reitzes said. That means developers and customers will know where Nvidia is headed and can a budget for upgrades accordingly.

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

Given Nvidia’s edge in the booming AI space, Melius Research projects the company will generate $270 billion in cash over the next three years, potentially setting the stage for huge shareholder returns.

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

“No one’s talking about it, and when you do the model we do, it’s a cash gusher,” he said. “And there’s nothing they can do. This government’s not going to let them buy anything big. They can’t invest that much in R&D. It’s just not possible. So we gotta get it as shareholders.”

To be sure, Nvidia has been returning capital to shareholders. In August, it announced a $25 billion repurchase program. And last month, Nvidia boosted its quarterly cash dividend by 150% from $0.04 per share to $0.10, equivalent to $0.01 per share on a post-split basis.

Nvidia declined to comment about the possibility of more stock buybacks.

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

Nvidia’s recent financials show that its ability to generate cash is accelerating. In the fiscal year that ended in January, Nvidia’s net cash provided by operating activities soared to $28.1 billion from $5.6 billion in the prior year.

And in the first quarter that 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 this past week that Nvidia will remain the gold standard for AI training chips amid concerns that rivals could cut into his market share.

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

“The Blackwell architecture platform will likely be the most successful product in our history and even in the entire computer history,” Huang said.