Jensen Huang Just Made a Massive Promise to Nvidia Investors

Those who have held shares of Nvidia (NASDAQ: NVDA) over the past five years are sitting pretty. The stock has skyrocketed by more than 1,000% over this period, establishing itself as the quintessential growth stock and becoming the world's largest company in the process. However, Nvidia may not be done rewarding investors. The company's CEO, Jensen Huang, recently made a commitment to shareholders that warrants close attention. Here's what investors need to know.

More than a growth stock?

Nvidia initiated a dividend in 2012, but its dividend per share and forward yield were not particularly impressive for a long time compared to those of its similarly sized tech peers. Nvidia recently changed that when it announced a 2,400% increase in its quarterly dividend, now $0.25 -- up from $0.01. That means the semiconductor specialist's forward yield is about 0.5% right now.

Image source: The Motley Fool.

That's still not high compared to the S&P 500, but it's more in line with what we see from other trillion-dollar tech companies. Further, Nvidia has a robust share buyback program in place, with management recently approving an additional $80 billion in share repurchases. That's all well and good, but how likely is Nvidia to increase its dividend consistently while also announcing additional share buybacks?

Judging by recent comments from Huang, the company could do at least one -- if not both -- of those things more often than many investors expect from here on out. As he said, Nvidia intends to return

50% or more of free cash flow to our shareholders this year, next year, and beyond.

And to make things crystal clear, Huang said this in the context of the company's recent dividend and share repurchase increases, while promising to grow both over time. That's a long-term promise investors should be thrilled about.

Can Nvidia pull it off?

Some may point out that Nvidia is facing increased competition that demands massive R&D investments. One of Nvidia's direct competitors in the GPU (Graphics Processing Unit) market, Cerebras Systems, recently went public. Meanwhile, hyperscalers such as Amazon, Alphabet, and Microsoft are increasingly designing their own custom chips in-house. They are still buying racks of Nvidia's GPUs, but their growing reliance on internal work puts the semiconductor specialist at significant risk, or so the argument goes. Given these factors, some may think that the bulk of Nvidia's free cash flow should go toward keeping rivals at bay and reducing its reliance on the hyperscalers, perhaps by expanding into other areas where AI has significant potential.

However, Nvidia's free cash flow has soared over the past five years. The company may have plenty of money to return to shareholders and also pour into R&D to maintain its lead in the GPU market. Nvidia generated $106.08 billion in free cash flow over the trailing-12-month period.

NVDA Free Cash Flow data by YCharts

That's way more than Microsoft, which has perhaps the strongest dividend program among the Magnificent Seven and also finds ways to remain a leader in key markets such as cloud computing.

Is Nvidia stock a buy?

The AI tailwind should help Nvidia maintain excellent revenue and earnings growth, driven by its core GPU business. And as we enter the age of agentic AI, Nvidia has positioned itself to capitalize on the new opportunities it will bring. The company is looking to tap into a brand-new $200 billion addressable market for Central Processing Units (CPUs) driven by AI agents, since much of the work they do is CPU-intensive, thereby causing soaring demand for computer processors. All these factors already make Nvidia a top stock to buy and hold onto for a while. The company's commitment to return at least half of its free cash flow to shareholders is the icing on a very good cake.

Prosper Junior Bakiny has positions in Alphabet, Amazon, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.