Nvidia Spent $26 Billion on Buybacks and Dividends in a Single Quarter. Its Board Is Betting Today's Profits Last 3 More Years.

Nvidia (NASDAQ:NVDA) returned approximately $26.0 billion to shareholders through share repurchases and cash dividends in its fiscal second quarter of 2027 (the period ended July 26). That's more than the $21.3 billion of free cash flow the artificial intelligence (AI) chip giant generated in the quarter, and nearly 10 times its capital spending for the period.

With guidance, management says what it expects from the coming quarter. With buybacks and dividends of this size, I think it shows how long it expects profits like today's to last. After all, repurchasing stock only works out if the earnings behind the price hold up.

The returns keep stepping up

A year earlier, the fiscal second-quarter total was about $10 billion -- $9.7 billion of buybacks and $244 million in dividends. In the first quarter of fiscal 2027, the figure hit about $20 billion. And the most recent quarter brought the first half's total to more than $45 billion. Zoom out, and the step-up looks even steeper: the company returned $41.1 billion in all of fiscal 2026, and this year's first half alone topped that.

The pace is speeding up, and the board keeps making room for more. On May 18, Nvidia increased its quarterly dividend from $0.01 per share to $0.25 per share and approved an extra $80 billion of share repurchase authorization, without expiration.

On top of that, after the second quarter's record returns, about $99 billion still remained under the repurchase program.

Why isn't Nvidia reinvesting the money?

Because the business doesn't need it. Nvidia designs chips and systems, while manufacturing partners own the factories that produce them. Revenue grew 106% year over year to $96.2 billion in the quarter, and net income climbed 126% to $59.7 billion -- yet capital spending was just $2.7 billion.

That doesn't mean management is out of ideas. Nvidia spent more than $42 billion buying equity stakes in other companies in the first half of the fiscal year, up from about $1.2 billion a year earlier. And in early September, it agreed to buy Hugging Face, a platform for open-source AI models, in a deal valued at about $12.9 billion.

Between the returns and that investing, Nvidia used more cash in the first half than the business produced. Free cash flow was $21.3 billion for the quarter and $69.9 billion for the half, up from $39.6 billion a year earlier. The company even issued $25 billion of senior notes in June.

Chief financial officer Colette Kress said on the company's late-August earnings call that Nvidia's plan is to return 50% or more of its free cash flow. Year to date, she said, it has returned 60%.

The dividend is the louder signal

A repurchase program can be slowed quietly anytime management turns cautious. A dividend, I'd argue, is a harder commitment to unwind. Reducing one tends to alarm investors like almost nothing else.

At $0.25 per share, Nvidia's payout runs about $6 billion a quarter. Increasing the dividend 25-fold in May was management saying it expects free cash flow to remain comfortably above that bill for years to come.

"[W]e intend to increase and return excess free cash flow net of strategic uses," Kress said on the call.

The repurchases point the same way. Nvidia paid average prices of about $202 to $214 per share for the stock it bought during the fiscal second quarter. That's close to the share price of about $211 as of this writing.

Boards can misjudge cycles, of course. The chip industry has a long history of booms that ended abruptly. If AI spending slows down a couple of years from now, the money spent on buybacks at these prices could end up looking expensive.

But a management team bracing for that outcome would probably hoard cash instead of multiplying its dividend by 25.

What, then, does the $26 billion tell us about the next three years? I think it shows us that management expects the earnings funding it to hold up at least that long.

The stock trades at about 28 times earnings, calculated over the past four quarters. Arguably, that's a modest price for a company whose profits more than doubled in the latest quarter -- so long as they prove durable.

Sure, Nvidia's board could be misreading its own cycle. But it has a clearer view of demand than anyone outside the company, and it isn't acting concerned.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.