Cramer warns Nvidia shareholders are being overlooked

Jim Cramer said on Monday night episode of Mad Money that Nvidia (NVDA) investors are being asked to accept too little from a company that has already become one of the biggest names in the stock market.

Jim said the company still makes him happy, but the latest earnings reaction was a problem because even though the report beat earnings, the NVDA stock crashed and Wall Street seemed uninterested.

Jim opened with a small breakfast story. He said he bought an egg, ham, and cheese sandwich over the weekend. He joked that it was not Taylor Ham, which already sounds like a very Jim thing to say. Then he said noticed the cook had written Nvidia on the order slip instead of his name.

Jim said, “I wish, during the transaction, I could have explained what must happen to get this stock to hunt again. It is undeniable that with this quarter, Nvidia has, indeed, lost its luster.”

Jim says Nvidia must give shareholders more after strong earnings failed to lift the stock

In the past, a big earnings beat from Nvidia could light a fire under the stock. This time, Wall Street looked at the numbers and basically said, “Nice. What else?”

However, Jim observed that the stock doesn’t seem to have the same kind of automatic affection with traders as in the past. NVDA shares rose from around $180 to close at a record high of nearly $236 within five trading days ahead of the quarterly report on May 14.

Jim understood that people could say the rise wouldn’t continue at that pace, but then he mentioned that the market is like the playoffs, where every team is assessed based on their latest performance. As per that logic, some stocks had done better than NVDA.

He also questioned whether Nvidia still deserves the old “own, don’t trade” tag. Jim did not fully throw it away, but he said the company needs a new plan, like for instance capital allocation, which is just the way a company uses its cash.

Jim used AAPL stock as an example. He mentioned Luca Maestri, who was the previous financial chief at Apple, saying that he realized the power of having a lot of cash as long as the company used it wisely.

Nvidia raises its dividend while investors watch Apple and Microsoft for comparison

The Nvidia dividend payments have increased. This growth took place after increasing the payment to shareholders from $0.01 to $0.25, meaning a growth of 2,400%. The dividend for the entire year will be equal to $1 per share.
This leads to the current yield being at 0.47%. While it is not a high yield compared to the current average yield in the S&P 500 of 1.1%, it is higher than Apple, which yields 0.35%. The new dividend yield is closer to Microsoft’s (MSFT) yield of 0.87%.

Nvidia’s dividend story already looked strange in 2024 because its payout technically rose 900% after the company’s 10-for-1 stock split. Now the newer increase makes the number look much bigger on paper.

The company can afford the payout. Nvidia reported diluted earnings per share of $2.39 in its latest quarter. That easily covers a full year of dividends at the current rate. The payout ratio is still tiny, so Nvidia has room to raise the dividend again if management wants to do that.

But that does not mean it will happen. Big tech companies usually prefer share buybacks over large dividends. Apple and Microsoft both make heavy profits, yet they have not turned themselves into high-yield stocks. The reason is simple. Once a company starts giving investors bigger dividends, investors expect more. Every year becomes another test.

That can get awkward for a company like Nvidia because its main story is still growth. Investors are buying Nvidia because of AI chips, data centers, and demand for computing power. They are not buying it because they want a tiny dividend check every quarter.

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