When Nvidia announced a record stock buyback on Monday, the chipmaker's share price was, by one key metric, at its cheapest level in a decade. CEO Jensen Huang saw it as a bargain.
Nvidia's price-to-earnings ratio for fiscal 2028, which begins this coming February, sits at just 14.5, below all of its megacap peers other than Micron . Its average current P/E ratio over the past five years is 62.9, more than double where it is today.
The constricted multiples for the world's most valuable company, now valued at over $5.5 trillion, reflect the sustained historic rate of profitability growth for the chipmaker powering the artificial intelligence boom. The stock is up 23% this year, topping the Nasdaq, but it's not keeping up with expected earnings growth.
Analysts on average expect Nvidia to hit net income of close to $385 billion in fiscal 2028, up 60% from the prior year and more than fivefold over a three-year stretch.
So on Monday, Nvidia said it's authorized an additional $150 billion to its share buyback program. That's on top of an $80 billion repurchase plan announced in May, when the company also boosted its quarterly cash dividend to 25 cents per share from 1 cent.
The latest buyback is a "clear-cut message" that management thinks its stock is undervalued, said Karan Ramchandani, managing director at Post Oak Group, in an interview.
"If you look at the P/E ratio, the earnings are are scaling up faster than the share price," Ramchandani said. "It's a very healthy mark of a company looking at their own stock buybacks as the best investment they could do in the coming year."
The stock rose almost 2% on Monday, when the company also announced new software and hardware solutions to control AI agents.
Nvidia is stepping up its capital return plans as its revenue and cash flow explode because of demand for the company's graphics processing units used to build and run AI models and services.
The company has signaled continued growth through early 2028, telling investors in August that it sees 70% sales growth in its fiscal 2028, which implied the company will do hundreds of billions more in sales than Wall Street had previously forecast.
Huang told investors at a Goldman Sachs conference earlier this month that Nvidia was "misunderstood" and implied that it should be more highly valued both for its growth as well as its value measured by future earnings.
"We are the world's first and only growth value stock," Huang said. "People are trying to figure out which one we are. We are both."
Huang is putting his company's money where his mouth is after telling CNBC's Jim Cramer last month that, "Buying back Nvidia stock is a tremendous opportunity."
Nvidia previously said it planned to return about half of its free cash flow to investors through share repurchases and buybacks. Its share count could drop by 4% if the chipmaker spends its entire current authorization.
"We're going to generate a lot of cash in the coming years," Huang said on CNBC's "Squawk Box" on Monday. "As we generate more cash, we'd like to be able to return it back to shareholders."
Gene Munster, managing partner at Deepwater Asset Management, told CNBC's "Fast Money" on Monday that investors appear worried that growth rates will slow after a monstrous few years.
"It's just really hard for investors to get comfortable that that's going to continue," Munster said. "That downward slope of growth rate, that's the reason why it trades at that compressed multiple."
Nvidia's fiscal 2028 P/E ratio puts it behind behind Apple (35.5), Alphabet (22.6), Microsoft (21.7) and Amazon (23.2) as measured for a similar period. It's also less highly valued than its primary AI data center chip rivals including Broadcom (18.2), Advanced Micro Devices (38.2) and Intel (54.7). None of Nvidia's rivals are forecasting 70% sales growth next year.
Broadcom's silicon business is built around developing custom chips with companies such as OpenAI and Google. AMD competes with Nvidia in GPUs, but with a small fraction of the market share. Intel makes central processors and has dabbled in AI chips, but doesn't have a competitive product to Nvidia's GPUs.
Ben Reitzes, an analyst at Melius Research, has a buy recommendation on the stock and said it "deserves to be higher given its growth rate."
"Buying back stock in a bigger and bigger way is going to really help it solve that problem and get a better valuation," Reitzes told CNBC's "Closing Bell" on Monday.
UBS analysts said in a note on Monday that Nvidia's stepped-up share repurchases could add 8 cents per share to the company's calendar year 2027 earnings, which it estimates at $17.16.
