(Bloomberg) — Nvidia Corp. made some astute stock buybacks last year ahead of a monster rally fueled by the artificial intelligence frenzy. Now the chipmaker is drawing attention because it stopped buying.
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After a three-year hiatus, Nvidia spent more than $10 billion repurchasing shares in the fiscal year that ended Jan. 29, a period that coincided with a precipitous drop in the price of the stock. That buying proved prescient, as Nvidia shares surged to $410 at Tuesday’s close, more than double the average stock price during fiscal 2023.
The spending spree stopped this year, however, just as the stock’s gains began to turn parabolic on bets that Nvidia would be one of the biggest beneficiaries from a surge in investment in AI computing. Despite having more than $7 billion on its buyback authorization, Nvidia didn’t repurchase any shares in the first quarter, which ended on April 30. An Nvidia spokesperson declined to comment.
The buyback freeze, along with recent stock sales by company insiders like director Harvey Jones, acts as a warning sign for Bob Shea, chief investment officer at Dynasty Financial Partners.
“It tells you a fair bit about how Nvidia might be viewing its own stock and how the price could have gotten ahead of itself,” he said in an interview.
Even though Nvidia’s profit estimates have shot higher following a banner earnings report and forecast last month, the stock is still trading at nose bleed levels. It’s priced at 46 times earnings projected over the next 12 months, up from 25 times in July, according to data compiled by Bloomberg.
Read more: Nvidia Touches $1 Trillion Mark After Beating Rivals to AI
Buy Low, Sell High
Companies don’t always have perfect timing when it comes to buybacks. Meta Platforms Inc., for example, repurchased $14.4 billion of its stock in the third quarter of 2021 when shares were near a record high. The stock plunged the following year and while it has recovered some of the losses, it remains 41% from its September 2021 peak.
Nvidia’s buying was “very good timing,” Evercore ISI analyst C J Muse. “It certainly suggests they have a keen focus on price.”
To be sure, not all investors see the buyback pause as a sign that the stock may be overvalued. Nvidia could be holding off to keep more cash at the ready, according to Brian Mulberry, client portfolio manager at Zacks Investment Management.
“It makes sense to be able to invest in yourself going forward, to have some cash on the sidelines,” said Mulberry, whose firm owns the stock and remains bullish on Nvidia.
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–With assistance from Tom Contiliano and Subrat Patnaik.
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Source: https://finance.yahoo.com/news/nvidia-buyback-freeze-follows-perfectly-093000054.html