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Is Nvidia’s stock buyback plan a sign of a key theme that could help drive the stock market?
The chip maker on Wednesday announced plans to buy back $25 billion in stock when it posted blow-out earnings results. The goal looks achievable, too: Nvidia (ticker: NVDA) in the July quarter bought back almost $3.3 billion of stock, just over half of its free cash flow. Analysts now expect $34.4 billion in cash flow next year—so if the company plans to return more than half of that in buybacks, repurchases would total close to $20 billion.
Buybacks can often be a key ingredient to stock market returns for investors. Some shareholders receive cash buy their selling shares back to the company, while others enjoy higher earnings per share because there are fewer shares outstanding.
Nvidia is aggressively growing its profits, enabling it to return so much money to stockholders. To be sure, most companies’ growth won’t be as spectacular as Nvidia’s—but if they can see earnings growth after what’s been a rocky 2023, buybacks should rise across the board, too.
In the first half of the year, companies on the S&P 500 repurchased just over $400 billion of stock, according to Citi, so they’re currently on pace to return just over $800 billion in 2023. That would be down about 11% year-over-year.
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