You might not think so at first glance, but Nvidia is currently exceptionally undervalued. The ratio of the GPU maker’s share price to revenue hasn’t been this favorable to buyers in 10 years (i.e., the P/E ratio, currently 32.62). Expectations surrounding the world’s most valuable company are somewhat more negative than before. Why is that, and what will the $235 billion share buyback yield?
Nvidia’s board of directors has allocated an additional $150 billion. The share buyback program now totals $235 billion. CEO Jensen Huang explains the decision as follows: “Our cash generation gives us the capacity to invest in the technologies that drive this transformation and return capital to shareholders.”
From $25 billion to $150 billion
The share buyback program, a tool designed to create greater scarcity in the stock market and thereby drive up the value of shares, has been in place for some time. The new capital injection is significantly larger than the additional $25 billion from 2023 or, for example, the $80 billion in 2025.
The expansion of AI data centers, powered by countless Nvidia GPUs, is the obvious driving force behind this buyback. For now, it appears that each new generation of Nvidia chips sets the standard for AI performance and drives spending by AI players. Yet there’s a fly in the ointment.
The cloud of doubt
That is, without a doubt, the rise of proprietary AI chips. That is to say: chips that a company like OpenAI manufactures itself, codenamed Jalapeño and produced in collaboration with Broadcom. Google has had its own TPUs for years, while Microsoft and Amazon are also building their own AI inference chips. Anthropic, Meta, and SpaceXAI are not yet in the mix, but this could change over time. Sales to China have been restricted for Nvidia since 2022, indirectly leading to the rise of Huawei as an AI chipmaker and infrastructure partner for Chinese labs such as DeepSeek, Moonshot AI, and Z.ai.
Nvidia remains unmatched in performance so far, but the expansion and construction of larger and new AI data centers are essential for continued sales growth. It may well be that it is not alternative chips from other companies but constraints such as space shortages, electricity shortages, and regulatory hurdles that throw a wrench in the works.
Now, with the new buyback program, Nvidia is signaling that it is, in fact, up to the task of overcoming all these challenges and once again deserves its sky-high valuation relative to actual revenues.
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