Pondering whether Nvidia's stock is overpriced? Ponder this: 60 billion reasons that might sway your judgment to favor a reconsideration.

Nvidia, the leading American technology company known for its graphics processing units (GPUs), is poised to benefit significantly from the ongoing surge in AI infrastructure spending by the world's largest tech companies, often referred to as hyperscalers. These tech giants, including Microsoft, Amazon, Google, Meta, and Oracle, have collectively invested hundreds of billions of US dollars annually—around 400 to 450 billion USD—in AI-related infrastructure in recent years, with a significant portion of these funds directed toward purchasing Nvidia's industry-leading chips.

This investment has contributed to a remarkable increase in Nvidia's market value. Over the last few years, the company's market capitalisation has soared from about $345 billion to more than $4 trillion. The stock remains a no-brainer opportunity in the AI realm due to structural growth drivers and shareholder-friendly capital allocation.

One such shareholder-friendly move is Nvidia's ability to return capital through stock buybacks. The company's strong cash generation and management's commitment to rewarding shareholders is evident in their recent commitment to a $60 billion stock buyback program. This new program will help Nvidia bolster its earnings per share growth during the transitional phase of the AI narrative. In the first half of the year alone, Nvidia repurchased 193 million shares of its common stock for $24.2 billion.

Nvidia's growth narrative is anchored on its chips being used for the training of large language models and other generative AI tools. The company's successor to the Blackwell, dubbed Rubin, is expected to ship next year. The real upside for Nvidia will come from the use of its chips in more advanced applications such as robotics, quantum computing, and autonomous systems.

However, it's important to note that the catch with Nvidia's next massive rally will come down to timing. It could be five to 10 years before these new, sophisticated use cases are driving enough sales to materially transform Nvidia's profitability profile.

Despite this, Nvidia's current trading price is in line with its three-year average price-to-sales (P/S) ratio and significantly below the peak it hit during the early days of the AI boom. At first glance, Nvidia's valuation may appear demanding. However, for investors trying to determine whether the shares are truly overvalued, management's latest announcement may offer some insight.

Nvidia's price-to-earnings (P/E) multiple looks deeply discounted to both its historical average and its peak levels over the last few years. The denominator in its P/E ratio (earnings) has expanded dramatically due to the AI trend. However, with the company's commitment to capital return and the anticipated growth from advanced AI applications, the potential for Nvidia's stock to outperform remains high.

In conclusion, Nvidia's position as a key player in the AI revolution, coupled with its shareholder-friendly capital allocation strategy, makes it an attractive investment opportunity for those looking to capitalise on the secular tailwinds of AI infrastructure spending.