There’s no question that Nvidia (NVDA 3.39%) has been a successful investment for shareholders. The company’s graphics processing units (GPUs) still dominate gaming with a 95% share of the market. Nvidia didn’t stop there, adapting its processors for all manner of technology, including cryptocurrency, autonomous driving systems, robotics, cloud computing, artificial intelligence (AI), and more.
It was the company’s foray into AI that sent the stock on a blistering run, as GPUs proved equally adept at processing AI workloads. Since the advent of AI in early 2023, the stock has gained 1,330% (as of this writing), driving its market cap to $5 trillion and making it the world’s most valuable company by a comfortable margin.
As impressive as its returns have been, there could be much more to come, as Nvidia announced plans that will be extremely lucrative for current and future shareholders.
Image source: Getty Images.
The dominant force in AI
Before we address the potential windfall, it’s helpful to understand the magnitude of Nvidia’s success, which continues to accelerate. For its fiscal 2027 first quarter (ended April 26), the company generated record revenue that soared 85% year over year to $81.6 billion, while also accelerating 20% quarter over quarter. Nvidia’s gross profit margin remains near record levels at 74.9%. This fueled adjusted earnings per share (EPS) that surged 140% to $1.87.
Make no mistake, it was AI that powered the results, as Nvidia’s data center revenue rocketed 92% year over year and 21% quarter over quarter to $75.2 billion, driven by unrelenting demand for the company’s Blackwell and Vera Rubin AI chips and accessories. By some accounts, the company controls between 85% and 92% of the data center GPU market.
Management expects Nvidia’s accelerating growth to continue. The company is guiding for Q2 revenue to grow 95% to $91 billion.
Perhaps most telling is the company’s growing cash generation. Nvidia delivered operating cash flow of $50.3 billion and free cash flow of $48.5 billion. That came despite heavy research and development spending, which grew 58% to $6.3 billion. Nvidia also has a rock-solid balance sheet with $80.5 billion in cash and marketable debt and equity securities, and just $12.3 billion in debt and operating leases.
What to do with all that money?
Nvidia has high-class problems and has obviously been struggling to find new ways to put all that money to good use. The company has been buying stakes in start-ups and taking equity positions in a number of publicly traded AI companies, investing more than $40 billion this year alone. Management has also been ramping up its shareholder returns, spending a record $20 billion in share repurchases and dividends in Q1. Yet its cash pile keeps growing.
Today’s Change
(-3.39%) $-7.05
Current Price
$201.14
Key Data Points
Market Cap
$4.9T
Day’s Range
$199.92 – $207.22
52wk Range
$140.85 – $236.54
Volume
14.4K
Avg Vol
165.8M
Gross Margin
74.15%
Dividend Yield
0.14%
The chipmaker then made the eye-popping move of increasing its quarterly dividend 25-fold, from $0.01 to $0.25 per share, payable on June 26 to shareholders of record as of June 4. That puts its dividend yield at roughly 0.5%, suggesting there’s still plenty more where that came from.
At Nvidia’s GPU Technology Conference (GTC) in Taipei earlier this month, CEO Jensen Huang dropped the mic when he unveiled how the company will spend its growing pile of cash. He said Nvidia plans to return:
50% or more of free cash flow to our shareholders this year, next year, and beyond.
Let’s do the math. Wall Street expects Nvidia to generate profits of $217 billion this year and roughly $307 billion next year. Applying the company’s current cash flow margin of 42% results in free cash flow of $91 billion and $129 billion, respectively. At 50%, that suggests Nvidia could disperse a total of $110 billion to shareholders over the next two years.
To be clear, those are estimates based on investor expectations, so the actual amount will vary. Returns of that magnitude could significantly reduce the outstanding share count through buybacks or supercharge the dividend through annual increases.
Either eventuality would be a boon to shareholders. And at 22 times forward earnings, Nvidia stock is a bargain.
