Nvidia (NVDA) getting more generous with its cash payouts to shareholders could be great news for the stock, just like it was for another tech titan: Apple (AAPL).
The news: Nvidia said on Wednesday it would expand its capital return program. It hiked its dividend to $0.25 per share from $0.01. It also announced a new $80 billion stock buyback program on top of an existing $39 billion program left over from a prior authorization.
Executives said it plans to return 50% of its free cash flow to investors in calendar year 2026.
The analysis: Evercore ISI analyst Mark Lipacis said Apple is a solid case study for identifying potential catalysts for a price-to-earnings ratio rerating after several years of compression. In the chart below, Lipacis showed that after five years of compression, Apple’s P/E ratio began to expand as its capital returns program increased.
“We expect the same to occur for Nvidia,” Lipacis said, adding that the Jensen Huang-led AI chip darling could become even more generous with its returns program in 2027.
Don’t forget: Based on research this week from Bank of America analyst Vivek Arya, only 47% of Nvidia’s free cash flow from calendar years 2022 through 2025 has been allocated to dividends and stock buybacks, compared with peers that return around 80% of their free cash flow. Nvidia, instead, has plowed its cash into the artificial intelligence ecosystem, investing in tech partners such as OpenAI (OPAI.PVT) and Anthropic (ANTH.PVT), which Arya believes has been “unfairly” characterized as risky circular/vendor financing.
“Boosting shareholder returns could expand ownership, close Nvidia’s valuation gap [relative to peers] and minimize circularity concerns,” Arya wrote.
The bottom line: Nvidia’s stock is seeing a ho-hum response today to its earnings report as concerns about peak growth rates swirl. But don’t underestimate the positive power of stock buybacks and dividends, especially when a leader in Nvidia is offering more of them to investors.
Brian Sozzi is Yahoo Finance’s Executive Editor and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email [email protected].
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