When $150 Billion Looks Small

Tyler Crowe (0:02)

150 billion, not that big. Motley Fool Hidden Gems Investing starts now.

Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crowe, and today I'm joined by longtime pool contributors, Rachel Warren and Lou Whiteman. We are going to get into the promise and the perils of investing in the defense and security sector. We're also going to hit the mailbag, but we want to start the day with, I guess you could say, the biggest news story, and that was Nvdia. They had a couple of press releases today, one on AI safety, and for the investors, perhaps the bigger one is the board of directors announced a $150 billion share repurchase agreement.

As the press release says, the biggest in history and gives the board about $250 billion to buy back shares right now. Now, guys, I'm going to give a hot take, and I want to get your quick reactions to this. I think it's way too small.

Lou Whiteman (0:58)

I mean, look, they're finally off the one-cent share dividend, which I didn't understand that either. But yeah, the law of large numbers just kind of is even that's thrown out of proportion here, but nothing is big enough and yeah, $150 billion, yawn.

Rachel Warren (1:14)

Yeah, I mean, it's the biggest in history, but it's also only around 2% of its market cap. So you sort of have to right size that for the company we're talking about. The other way to look at it is that Nvdia is generating tremendous amounts of cash flow from the AI infrastructure build out. They have more capital than they can logistically reinvest back into R&D. So I think that this is a way we're seeing that play out.

Tyler Crowe (1:36)

I would make the argument that the announcement should be like at least triple this. I know that sounds like crazy and probably put me on like CNBC.

But, you know, I'm not the most tech person.

SPEAKER_4 (1:48)

Well, let's put it this way.

Tyler Crowe (1:50)

We could do a CNBC take on this. But like I would argue number one, between its valuation, its current like debt situation. And as we said, it's only like 2% of its market cap. There is an opportunity here for a five point. I can't even, it changes $100 billion a day. So I can't even track what the point is anymore. But five points, something trillion dollar company.

This should be somewhere in the, you know, at least 5% of its market cap. If you're going to, if you're trying to wow investors, don't be afraid to use a little bit of leverage. This is a company that made $134 billion in free cash flow. So you added one year's worth of free cash flow. Come on, impress me Nvidia. So I'm being a little hot take here. But part of the reason I think that they announced this, and I want to get your guys' take on this one specifically, was in addition to this share repurchase, there was a press release related to AI safety and perhaps building some guardrails or some safe spaces where we don't get these, hey, AI may have hacked hugging face. Hey, AI may have hacked the Australian government's health websites, all of these news stories we've been popping up. It was maybe this $150 billion, a little bit of, hey, let's help the medicine go down here for our investors.

Rachel Warren (3:05)

Yeah, I think that's definitely part of it. I don't think the timing is a mistake by any means. I think that was probably very well coordinated from up above. But this is a real industry issue. We're seeing advanced AI models, as you noted, from a wide range of labs as well as the big hyperscalers that are repeatedly breaching secure sandboxes. Obviously, there's the high-profile hugging face incident. But we're also at a time where CEO, Johnston Huang has been very, very clear on the approach he wants to take here. He doesn't want to wait for government regulation. He's actually pushed back against that. He's really framed AI safety strictly as an engineering problem that can be managed at the hardware and platform layer.

Just to talk a little bit about what they're doing, Nvidia is introducing an open-source framework. It's called Open Shell. They're also introduced to a hardware watchdog called Sentry. Essentially, the idea is these will help quarantine rogue software within milliseconds. Open Shell is interesting. It's open-source as its name indicates, designed to support rival platforms from ARM and Intel. You can see how Nvidia is trying to establish a universal industry standard for safety. They want to lower the risk barrier for enterprise adoption before maybe you see more corporate security teams or regulators freeze the deployment of autonomous AI agents. I think that they're very much trying to get ahead of the curve here.