Nvidia Just Announced the Largest Stock Buyback Authorization Increase in History. Should You Buy the Stock?

Fresh off nearly $20 billion of share repurchases in its most recent quarter, Nvidia (NASDAQ:NVDA) is hinting that there is a lot more to come.

The company announced on Sept. 28 that its board of directors has authorized an additional $150 billion under its share repurchase program, bringing the remaining total authorization to $235 billion.

It's the largest increase to a share repurchase authorization plan in history. In a press release, the company also said it expects to use all of this authorization through fiscal year 2028.

Nvidia stock traded roughly 3% higher, as of 9:35 p.m. ET.

The $235 billion authorization currently equates to about 4.3% of Nvidia's market cap. With six quarters remaining between now and then, that means the company could repurchase over $39 billion of its own stock per quarter.

"NVIDIA's growth is being driven by a once-in-a-generation platform shift to AI and accelerated computing," CEO Jensen Huang said in a statement. "Our cash generation gives us the capacity to invest in the technologies that advance this transformation and return capital to shareholders. This authorization reflects our confidence in the long-term opportunity ahead."

Should investors buy the stock?

Investors remain cautious

Nvidia stock has enjoyed a solid year, up nearly 25%. But considering that the company continues to report blowout earnings quarter after quarter, sentiment still strikes me as cautious.

Part of this may be because the stock is already so large, with a roughly $5.6 trillion market cap. A double from here may feel difficult for investors to wrap their heads around, simply given the law of large numbers.

However, investors may also be worried about a slowdown in AI capital expenditures at some point. After all, Nvidia's chips need to be purchased for data centers, which are incredibly expensive to build and seemingly face more opposition each day.

So if there is a slowdown in the capex story, that would likely be bearish for Nvidia. Critics have suggested that some of the circular financing deals Nvidia has engaged in, funding or investing in key suppliers and customers, is evidence of this. Nvidia has also reportedly been financing companies building data centers.

Lastly, there has been concern that the chip business will gradually become more commoditized, eroding Nvidia's pricing power and, in turn, its gross margins.

On Nvidia's most recent earnings call, CFO Colette Kress told investors that it expects Nvidia's gross margins to contract from about 75% to 71% to 72% by the fourth quarter of its fiscal year 2027, largely due to higher memory prices. But this metric will be important for investors to watch moving forward.

Is the stock a buy?

Nvidia's stock looks attractive on many fronts. The company continues to guide for tremendous growth. On its most recent earnings call, Nvidia guided for roughly 70% annual revenue growth in fiscal year 2028, well above what Wall Street analysts had been modeling.

Trading at roughly 24 times forward earnings, that doesn't seem all that demanding for what many are calling a generational company at the very center of a generational industry.

Still, investors should be mindful that the Nvidia story is being driven by forces such as AI capex that are not easy to predict. Even trying to understand how advanced current AI models and technology are is quite difficult.

On the surface, Nvidia looks very compelling, but there are some unknowns in the AI trade that do make the stock risky. That's why owning Nvidia really depends on your risk tolerance.

A more balanced approach for long-term investors is to simply own the S&P 500, in which Nvidia currently accounts for nearly 7.9% of the market-weighted benchmark.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.