A subtle shift in wording from NVIDIA (NVDA) is reshaping how investors understand the financial health of this chipmaking giant.

On September 28, NVIDIA announced it would expand its share repurchase authorization by $150 billion to $235 billion, quietly embedding a critical phrase in the announcement: "we will return capital to shareholders in the form of excess free cash flow net of strategic uses." According to a report in The Wall Street Journal, this sentence essentially signals to investors that NVIDIA's external equity investments will also reduce the cash available for buybacks and dividends. This wording drew almost no market attention, but the financial logic behind it carries far-reaching implications.

If NVIDIA's strategic equity investments and equity-compensation-related cash outflows are factored in, its actual free cash flow for the first half of the fiscal year would plunge from the officially reported $69.9 billion to approximately $21.7 billion — a decline of nearly 70%. Meanwhile, NVIDIA spent about $31 billion during the same period on additional buybacks beyond what was needed to keep its share count flat, and added $24.9 billion in new long-term debt, bringing its total to $32.4 billion, relying partly on borrowing to sustain its buyback pace. This combination has raised questions about the sustainability of its repurchase program.

Net Strategic Uses: How One Phrase Changes the Buyback Logic

The core of NVIDIA's wording adjustment lies in incorporating strategic equity investments into the deductions from free cash flow.

Traditionally, free cash flow is calculated as operating cash flow minus capital expenditures (capex) and is viewed as a proxy for the cash a company can freely deploy after maintaining operations. However, NVIDIA's capex now extends beyond factories and equipment to equity investments in companies within the AI ecosystem.

NVIDIA discloses that it currently holds equity stakes in 13 publicly listed companies and 229 private companies, spanning data center construction, AI model development, energy supply, and hardware manufacturing — including well-known AI firms such as OpenAI and Anthropic. NVIDIA characterizes these investments as "strategic" rather than "discretionary," arguing they help accelerate the development of its computing platform and the broader AI market.

Notably, these investee companies are also buyers of NVIDIA's chips, creating a circular dynamic — NVIDIA injects capital into them, and they use those funds to purchase NVIDIA products. This circular structure has already sparked concerns about the sustainability of the AI boom.

Behind the Numbers: How Much Is Free Cash Flow Overstated?

NVIDIA has not formally revised its definition of free cash flow and officially still uses the traditional formula. But the gap between the official figure and the actual number is striking.

According to an analysis by The Wall Street Journal, during the first half of the fiscal year ended July 26:

NVIDIA's cash outflow for equity investments was $42.4 billion, with $7.2 billion in proceeds from sales, resulting in a net outflow of $35.2 billion.

If this net outflow were treated as capex, NVIDIA's free cash flow would be halved from $69.9 billion to $34.7 billion.

In addition, cash outflows related to employee stock-based compensation are also excluded from the traditional free cash flow calculation. During the same period, NVIDIA paid $4.5 billion in cash withholding taxes on employee stock vesting, and approximately $9 billion in buybacks were used to offset equity dilution from stock-based compensation.

After deducting cash outflows related to employee equity compensation and adding the net equity investment outflow, NVIDIA's adjusted free cash flow for the first half of the fiscal year comes to approximately $21.7 billion — roughly 69% lower than the official figure.

At the same time, NVIDIA added $24.9 billion in new long-term debt during the period, which partly explains how the company maintained a substantial additional buyback pace even as strategic investments and equity compensation absorbed large amounts of cash.

$235 Billion Buyback Authorization: Can Wall Street Expectations Be Met?

NVIDIA's $235 billion buyback authorization is enormous and would require sustained, robust cash flow to fulfill.

According to Wall Street analyst estimates compiled by Visible Alpha, NVIDIA's average projected free cash flow for fiscal year 2028 (ending January 2028) exceeds $330 billion, theoretically enough to cover the entire buyback authorization and dividend payouts.

However, NVIDIA itself has signaled through its wording adjustment that it will need to continue injecting substantial capital into its investee companies. If strategic equity investments remain at elevated levels, the adjusted distributable cash flow will be far below projections based on the traditional metric, and the actual room to execute the buyback plan will narrow accordingly.

Disclosure: Nvidia Leads Peers but Still Falls Short

On the information transparency front, NVIDIA has taken a leading step forward.

NVIDIA adjusted the presentation of its cash flow statement last quarter, fully separating debt securities from equity securities under investing activities (its debt securities holdings are all U.S. Treasuries or agency bonds), allowing investors to perform the above adjustments themselves.

By contrast, Microsoft, Amazon, and Google parent Alphabet all combine debt and equity investments in their reporting, making it difficult for investors to perform similar breakdowns. The Wall Street Journal argues that other companies should follow NVIDIA's approach.

Even so, NVIDIA's disclosure improvements are only a starting point. The true picture of free cash flow is far more complex than it appears on the surface, and investors need a higher degree of transparency from cash flow statements to accurately assess the true financial condition and buyback capacity of the most important chip company in the AI era.