NVIDIA's aggressive push into dividend payments and share buybacks could serve as a major catalyst for its stock, echoing a strategy that previously worked wonders for Apple. The AI chip leader returned a record $26 billion to shareholders during its fiscal second quarter, allocating $20 billion toward stock repurchases and $6 billion via a quarterly dividend of $0.25 per share.

NVIDIA plans to return 50% or more of its free cash flow to shareholders, and year-to-date, the company has already exceeded that target at 60%. Company executives have signaled that this policy of returning cash to investors will continue in the future.

Evercore ISI analyst Mark Lipacis wrote in a Thursday research note: "We project NVIDIA will return $115 billion in cash to shareholders in 2026, rising to $230 billion in 2027. We expect this to drive price-to-earnings multiple expansion, recreating the scenario Apple experienced in 2015." Lipacis highlighted in the accompanying chart that Apple's P/E ratio began to climb after five years of contraction, once its capital return program gained momentum.

NVIDIA's operational strength fully supports this increased cash return to shareholders. The stock climbed 6% following better-than-expected second-quarter earnings and optimistic guidance. Prior to the earnings release, NVIDIA's year-to-date performance had slightly lagged the S&P 500, which is up roughly 14% this year.

NVIDIA reported adjusted earnings per share of $2.22 on revenue of $96.2 billion, surpassing consensus estimates of $2.09 per share and $92.3 billion in revenue. Data center revenue, which includes hyperscale cloud providers, AI cloud, industrial, and enterprise segments, reached $89 billion against expectations of $85.8 billion. Edge computing revenue, covering physical AI, gaming, and other segments, came in at $7.2 billion, beating analyst projections of $6.6 billion.

For the third quarter, NVIDIA guided revenue in the range of $105.8 billion to $110.1 billion, ahead of Wall Street's expectation of $105.1 billion. Stifel analyst Ruben Roy noted this will mark NVIDIA's first quarter with revenue exceeding $100 billion. The company stated its revenue growth rate will surpass the 45% analysts have forecast, with CEO Jensen Huang indicating the figure would have been even higher if not for certain headwinds.

Jefferies analyst Brian Curtiss commented: "Driven by robust AI infrastructure demand and higher revenue per gigawatt, we see a clear path to a trillion-dollar fiscal year. Despite gross margin easing to 72.5%, the $279 billion supply backlog further strengthens our confidence in NVIDIA's earnings visibility and its capacity to underpin the next phase of AI infrastructure buildout."