Nvidia has plowed the vast majority of its cash into the artificial intelligence ecosystem rather than returning it to shareholders, and at least one major Wall Street analyst says that choice may be holding the stock back. According to Yahoo Finance, Bank of America analyst Vivek Arya laid out the case in a new research note that Nvidia's approach to capital allocation stands apart from its large-cap technology peers in ways that are likely costing the company new investors.
Based on Arya's research, Nvidia returned only 47% of its free cash flow through dividends and stock buybacks from calendar years 2022 through 2025. Comparable companies in the same tier return around 80% of their free cash flow to shareholders. Instead, Nvidia has directed its cash into investments in partners within the AI ecosystem, including companies such as OpenAI and Anthropic.
Arya argued that those investments have been "unfairly" characterized as risky circular or vendor financing, but he still made the case for changing course. "Boosting shareholder returns could expand ownership, close Nvidia's valuation gap [relative to peers] and minimize circularity concerns," he wrote.
The numbers illustrate how wide the gap is. Nvidia's dividend yield sits at just 0.01%. Apple, which is not considered a generous dividend payer by historical standards, carries a yield of 0.50%. Apple's board authorized an additional $100 billion stock buyback program in April, matching a $100 billion authorization from 2025 and following an all-time record $110 billion program unveiled in 2024. Nvidia, by comparison, had $58.5 billion remaining under its own buyback plan heading into its most recent earnings release.
The valuation difference is also notable. Nvidia trades at a forward price-to-earnings ratio of 24.9 times. Apple, which returns far more cash to investors, trades at 32 times forward earnings. The gap suggests that the market is not rewarding Nvidia's AI investment strategy with a premium valuation relative to its more cash-generous peers.
Part of the challenge for Nvidia is structural. The company holds roughly 8.3% of the S&P 500 index and has ownership in about 78% of actively managed funds, a position that Arya described as a headwind. When a stock is already that widely held, managers have limited room to add more shares. Increasing the appeal to dividend and income-oriented investors, who currently have little reason to own a stock with a near-zero yield, could help bring in a new class of shareholders.
CEO Jensen Huang has recently signaled some openness to returning more cash to investors, according to Yahoo Finance, suggesting the issue has registered with Nvidia's leadership. Whether that leads to a meaningful shift in how the company allocates capital remains to be seen, but the pressure from analysts and investors appears to be building as Nvidia's growth rates begin to normalize from the extraordinary levels of the AI spending boom.
