Nvidia stock buyout could turn out to be a $270 billion ‘cash gusher’
AI chip leader Nvidia will become an embarrassment of riches in the coming years, and shareholders will be rewarded, tech analysts predict.
Ben Reitzes, managing director and head of technology research at Melius Research, told CNBC on Wednesday that Jensen Huang’s Nvidia has a “full stack” approach to its hardware and software, giving it a significant advantage in AI.
“What they’ve done is create a computer language and an ecosystem that allows you to monetize AI, and they’re obviously killing it,” he said.
Reitzes has a $160 price target on Nvidia stock, implying a 30% upside to Friday’s closing price. Despite the ongoing selloff that began earlier this month, shares are up 150% so far this year after tripling in 2023. Among the Magnificent 7 stocks he covered, Nvidia has the most upside, he added.
Another big advantage Nvidia has over competitors is its annual cadence of new product innovations, Reitzes said. That means developers and customers will know where Nvidia is headed and can plan development budgets accordingly.
“And they run 150 kilometers an hour when everyone else runs 100. It will be difficult to catch these guys,” he said.
Given Nvidia’s edge in the booming AI space, Melius Research projects the company will generate $270 billion in revenue over the next three years, potentially setting the stage for big shareholder returns.
Management may not want to emphasize the possibility of stock buybacks since those are often associated with older companies, Reitzes said. But in his opinion, it’s obvious.
“No one is talking about it, and when you do the model we do, it generates money,” he said. “And there is nothing they can do. This government will not let them buy anything big. They cannot invest so much in R&D. It just doesn’t happen. So we have to get it as shareholders. ”
To be sure, Nvidia was returning money to shareholders. In August, it announced a $25 billion buyback plan. And last month, Nvidia increased its quarterly dividend by 150% from $0.04 per share to $0.10, which equates to $0.01 per share on a split basis.
Nvidia declined to comment on the possibility of multiple stock purchases.
For his part, Reitzes was quick to point out that any future acquisitions would not mean that Nvidia has stopped growing. “It is not insulting to return shares if there is nothing else to do.”
Nvidia’s latest earnings show that its cash-generating potential is accelerating. In the fiscal year that ended in January, Nvidia’s net income from operating activities rose to $28.1 billion from $5.6 billion a year earlier.
And in the first quarter that ended in April, net operating income was $15.3 billion—more than half of last year’s total.
Meanwhile, Huang told investors last week that Nvidia will remain the gold standard for AI training chips amid concerns that rivals could erode its market share.
The launch of Nvidia’s Blackwell system later this year will strengthen that lead, he said at the annual shareholder meeting on Wednesday.
“The Blackwell architecture platform will probably be the most successful product in our history and even in the history of computing,” Huang said.
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