Share Repurchase Activity Is the X-Factor for NVIDIA Corporation (NVDA) This Quarter

Page 1 of 2

Graphics chip and mobile processor maker NVIDIA Corporation (NASDAQ:NVDA) provided guidance below Wall Street’s expectations when it reported earnings in November, and consequently has sat out the recent stock market rally.

NVDA Chart

NVIDIA and S&P 500 Relative Performance. Data by YCharts.

However, the company made some tentative steps toward returning cash to shareholders, which softened the blow. For the first time, NVIDIA initiated a quarterly dividend. With an annual payout of $0.30, NVIDIA’s dividend yield of 2.4% is fairly good for a tech company. NVIDIA’s board also extended the company’s share repurchase plan. One of the key things to look for in NVIDIA’s upcoming earnings report (Wednesday after market close) is whether the company made use of the repurchase authorization to retire shares.

NVIDIA Corporation (NASDAQ:NVDA)Too much cash?
Strictly speaking, there’s no such thing as too much cash. However, NVIDIA’s recent capital allocation policy has not served shareholders well. As of late October, the company had $3.43 billion in cash and short-term investments on its balance sheet. Assuming no share repurchases, this amount has probably grown to around $3.8 billion by now, as NVIDIA received a $300 million royalty payment from Intel Corporation (NASDAQ:INTC) in January as part of a cross-licensing agreement between the two companies. Cash thus represents nearly half of NVIDIA’s market cap of $7.9 billion.

While NVIDIA has had the authority to buy back up to $1.24 billion of stock for several years, the company has not repurchased any shares since 2008. NVIDIA’s share count has grown significantly since then as employees have exercised their stock options.

NVDA Shares Outstanding Chart

NVDA Shares Outstanding. Data by YCharts.

This increase in the share count dilutes the holdings of NVIDIA’s investors and leads to lower EPS. By using excess cash to repurchase shares, NVIDIA could reverse the recent growth in share count, boost EPS, and (hopefully) increase demand for the stock.

Waiting for earnings catalysts
Obviously, profit is the ultimate driver of value for any business. However, NVIDIA’s near-term earnings do not really reflect the company’s future prospects. As I wrote last week, NVIDIA will have an opportunity to challenge market leader QUALCOMM, Inc. (NASDAQ:QCOM) for a piece of the growing smartphone processor market when it releases its first integrated mobile processor (code-named “Grey”). However, this product will most likely debut in the fall; until then, NVIDIA is at a severe disadvantage and is unlikely to gain market share.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

The 10 Longest Wars of All Time

The 13 Worst Looking Foods that Taste Great

The 6 Most Gruesome Injuries Suffered During a Sports Match

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!