Nvidia announces a shower of cash
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Nvidia announced plans to supersize the shower of cash it will return to shareholders.
Why it matters: On Wall Street, big increases in plans to return cash — such as a fast-growing company announcing a dividend for the first time — are viewed as a tacit acknowledgement that the company is running out of places to invest profitably.
By the numbers: Nvidia reported better-than-expected results for quarterly profits, sales and data center revenue in its most recent quarter, which ended on April 26.
- The AI chipmaker also boosted its dividend from 1 cent per share to 25 cents per share.
- And it authorized another $80 billion in share repurchases, on top of the $38.5 billion in an existing authorization.
Context: Wall Street analysts had recently been focused on Nvidia's relatively skimpy cash return policy as a lever that executives could pull to generate more enthusiasm for stock, which is trading at a pretty steep discount compared to other red-hot semiconductor stocks like Intel or AMD.
What they're saying: Analyst Mark Lipacis, who covers Nvidia for Evercore ISI, wrote in a note earlier this week that Apple's decision to sharply boost shareholder payouts in 2016 and 2017 serves as a good analog that "indicates a large capital return program could coincide with re-rating."
- Translation: Returning more cash could boost the company's valuation on key metrics like price-to-earnings ratios.
Yes, but: The idea of more cash coursing toward shareholders didn't seem to do the trick on Wednesday.
- Shares wobbled in the after-hours session, as the market seemed to struggle understand the implications of the move.
Go deeper: Big dividend announcements from fast-growing companies may also signal that companies are positioning for a slower pace of growth.
The fine print: Though Nvidia's headline numbers were quite strong, some details from report could be interpreted as, perhaps, signaling some slowdown.
- For instance, the company's data center division reported $60.4 billion in compute revenue, slightly undershooting the $60.8 billion analysts had expected, according to FactSet numbers.
- That slight miss might not be a big deal if it doesn't continue.
- But Nvidia also announced a plan to switch how it reports such numbers, so in the future, making apples-to-apples comparisons of some key items, like the aforementioned "compute" revenue, won't be as easy. Hmmm.
