Nvidia (NVDA) and CEO Jensen Huang may need to consider upping cash giveaways to attract new investors. Offering an enticement could help in luring in more stakeholders.
A recent analysis by BofA analyst Vivek Arya highlighted that Nvidia’s significant position of 8.3% in the S&P 500 index and 78% active fund management ownership could be acting as a headwind to the stock. Arya suggested that by increasing cash returns and appealing to dividend and income-oriented investors, Nvidia could potentially attract more investors, similar to other large-cap tech companies.
Currently, Nvidia allocates only 47% of its free cash flow to dividends and stock buybacks from calendar years 2022 through 2025, whereas its peers typically return around 80% of their free cash flow. Instead, Nvidia has been investing heavily in the AI ecosystem by partnering with tech companies like OpenAI and Anthropic, which some believe has been unfairly characterized as risky circular/vendor financing. Arya believes that boosting shareholder returns could help expand ownership, close Nvidia’s valuation gap relative to peers, and address circularity concerns.
Comparing Nvidia to Apple, it becomes apparent that Nvidia has a meager 0.01% dividend yield, whereas Apple boasts a 0.50% yield. Apple recently authorized an additional $100 billion stock buyback program, following their record-breaking $110 billion program unveiled in 2024. In contrast, Nvidia still has $58.5 billion remaining under its stock buyback plan.
Nvidia’s forward price-to-earnings ratio is 24.9 times, while Apple, which is more generous with cash, has a PE ratio of 32 times. It might be beneficial for Nvidia’s investors if management reevaluates how it allocates capital to shareholders. Huang has indicated a willingness to give shareholders more cash, showing that the concern is not lost on him.
While investing in the AI ecosystem is essential, distributing more cash to investors as growth rates normalize could be well-received.
In conclusion, Nvidia and Jensen Huang may need to rethink their capital allocation strategy to attract more investors and address concerns about shareholder returns. By offering more cash incentives, Nvidia could potentially bridge the valuation gap with its peers and expand ownership.
