NVDA's $150B buyback is insufficient relative to its valuation and FCF, indicating a lack of new catalysts to impress investors.

They issued two statements today, one about the safety of artificial intelligence, and for investors, perhaps the most important was the board's announcement of a $150 billion share buyback agreement.

As the press release states, it is the largest in history, giving the board approximately $250 billion to repurchase shares currently. I think it's too small. I mean , look. They finally got rid of the one-cent-per-share dividend , which I also didn't understand.

But yes, the law of big numbers here seems out of context, and nothing seems big enough. Yes, 150 billion, boring.

Yes, I mean it's the largest in history, but it only represents about 2% of its market value. Therefore, you need to adjust that to suit the company we are talking about. I mean, another way to look at it is that Nvidia is generating huge cash flows from building AI infrastructure.

They have more capital than they can logistically reinvest in research and development. So I think this is what we are seeing happening now.

I would say that the advertisement should have been at least three times this amount. I know this sounds crazy and might put me on CNBC, but you know, I'm not the tech expert here.

Okay, okay, look , let's put it this way. We could offer an opinion like a "CNBC" analysis, but I would say; First, between its valuation and its current debt position , which, as we said, is only 2% of its market value, there is an opportunity here for a 5% ratio.

I can't even keep track of it, it's changing by a hundred billion dollars a day, so I can't follow the point anymore, but as a company valued at more than 5 trillion, this amount should be at least at the level of 5% of its market value.

If you're trying to impress investors, don't be afraid to use a little leverage. This is a company that has generated $134 billion in free cash flow. So, you have added the equivalent of one year's free cash flow . Let's go. Impress me, Nvidia.

So, I'm making a bold point here, but one of the reasons I think they announced this—and I want to know what you think about this point specifically—is that in addition to the share buyback, there was a press release related to AI security and perhaps building some barriers or safe spaces so that we don't have news like, "Oh my god, AI may have hacked Hugging Face."

Oh my God, artificial intelligence may have hacked into the Australian government's health websites. All these news stories began to appear. Perhaps this $150 billion was a way to make it easier for investors to accept.

Yes, I think that's definitely part of it. I don't think the timing was a coincidence in any way . I think it was very well coordinated by senior management. But this is a real problem in the industry.

We see sophisticated AI models, as I mentioned, from various labs, as well as large companies that regularly breach secure protection environments. There is obviously the famous Hugging Face incident.

But we are also at a time when CEO Jensen Huang has been very clear about the approach he wants to take here. He does not want to wait for government regulations. In fact, he opposed it.

He accurately framed AI security as an engineering problem that can be managed at the hardware and platform levels.

To talk a little about what they do, Nvidia offers an open-source framework. It is called Open Shell. They also introduced a device monitoring tool called " Centry," the basic idea of ​​which is that these tools will help isolate malware in fractions of a second.

The Open Shell framework is interesting. It is open source, as its name suggests. It is designed to support competing platforms from ARM and Intel, so you can see how Nvidia is trying to set a global industry standard for security.

They want to lower the risk barrier to institutional adoption before we see more corporate security teams or regulators halting the deployment of independent AI agents. So I think they're really trying to get ahead of things here.

Returning to the question of investment. Yes, I think they wrap bad news in good news, but look, this is part of a prevailing trend. Nvidia has run out of ways to impress the market.

Jensen increasingly looks like the greatest showman. You know how often he goes on stage now just to make bold statements. The stock has achieved virtually nothing since the spring.

The reports of impressive earnings are received rather coldly. I think this is a great business , but the prevailing perception, whether due to pessimism about artificial intelligence or simply investor boredom, is what they are trying to counter.

Nvidia has run out of ways to impress or excite investors, and I think the massive buyback program is proof of that. This might just be another failed attempt to say, "Hello, do you remember us?" We're still really good.

Yes, okay, guess what? If you're the chief financial officer and you really want to impress investors, buy back $500 billion worth of shares. This is a good selling point for them.

Okay, but at this point, Nvidia's stock is trading at about 18 times its earnings estimate for next year. It's the cheapest it's been in a decade. And I say, or perhaps it's a small comment I like, that the market is irrational but not stupid .

So there are some risks accumulating here that we may not see.

What risks might investors want to consider that are hidden and not thought about by most people due to the cyclical nature of the process, of course? There is a cycle in this industry.

But what are some things that people probably don't pay much attention to?

I think there are some things that need to be taken into consideration. I mean, one of them is a type of circular financing. This is not a secret. This is something that has been talked about a lot.

I mean, we're looking at that number that Nvidia just announced today. They revealed that the total value of Anthropic contracts across Nvidia-backed cloud computing entities has exceeded $180 billion alone.

This is only in their arrangements with "Anthropic". Nvidia’s balance sheet includes 13 public equity stakes, more than 200 private equity stakes, and $20 billion in data center lease liabilities.

They primarily function as a financial center , and that is a function of necessity. The idea is clearly that this goes back to Nvidia's growth story. But there is that circular financing mechanism which I find worrying depending on whether or when the expansion will slow down.

Another thing to note is that large companies are wearing out these AI graphics processing units (GPUs) at rapid lifecycles of 3 to 5 years. They are operating on the assumption that there will be ongoing upgrades worth billions of dollars.

But what if you have a graphics processing unit that is a few years old and ends up being perfectly adequate for 80% or more of your enterprise inference workload? This upgrade cycle can be much slower.

If that happens, companies like Nvidia could experience a sharp decline or at least a slowdown in growth, even if that is in the distant future. I mean , basically, this idea doesn't mean that the technology will fail.

If current devices are operating at very high efficiency, Nvidia may find itself outside its own upgrade cycle. This is an extreme case, but I think it's something Nvidia investors should take into account when evaluating their investments right now.

I think there is a logical, not extreme, viewpoint that says the best days of the artificial intelligence cycle are over . Not in the sense that it won't be good for a period of time.

But Google, Amazon, Microsoft, Meta, and OpenAI are all at least trying to manufacture their own chips. No one will stop dealing with Nvidia, but Wall Street is interested in growth.

And if there is increasing competition, not to mention other chip companies , this will probably lead to a ceiling on upward growth. Also, if advanced models are no longer of great importance, and there is increasing evidence of this, will the need for the latest and most expensive chips still exist at the same hoped-for scale?

It may seem boring, but it is actually important.

Patrol is an unavoidable reality . In 2023, Nvidia's earnings per share were less than one dollar per year. And now it's reached eight dollars. So, it may look cheap based on the price-to-earnings ratio, but the question is: how long can this level of earnings per share be sustained?

If this does not continue , the price-to-earnings ratio will look very different.

I wonder, what drives that earnings per share? Repurchasing shares worth $500 billion. I will try to solve this dilemma myself.