Nvidia, the wonder child of the tech world just announced a $50 billion stock buy back.

Stock buybacks are when a company uses it cash to purchase its own shares. There are a number of reasons for doing this. But it starts off with the company having an excess of cash and coming to the conclusion that the do not need this cash to continue to grow. Returning the cash in the form of a stock buy back reduced the number of total shares which has the effect of increasing the price/earnings ratio. So the stock price is expect to go up. That is often happens in the short term and is a benefit to both stock holders and employee option holders. The company has to also believe that their stock is either fairly valued or undervalued for the buyback to make sense. Frankly, I have a hard time thinking the Nvidia’s stock is undervalued. This action by Nvidia makes me think about my former company, Intel.

Lets look at what happened at Intel.

Total Buyback Summary (2018 – Q1 2023)

• Total Shares Purchased: 756.3 million shares

• Total Amount Spent: $35.534 billion

• Overall Average Share Price: $46.97

Breakdown:

• 2018: $8.9 billion over four quarters, with an average price of $47.81.

• 2019: $13.6 billion over four quarters, with an average price around $50.39.

• 2020: $14.2 billion spent over three active quarters, with an price around $50.88.

• 2023 $2.415 billion spent with an average share price around $61.15.

Please note that Intel’s current stock price is about $20. So the stock they bought lost more than half of its value.

Is Nvidia buying back its own stock a smart decision? Personally, I think not. They would be better of diversifying and buy other companies or assets and using their stock and not their cash to do it.