Nvidia currently sits almost entirely in growth-index territory, but a contributing Motley Fool analyst expects the December Russell 1000 reconstitution to split its weighting between the growth and value benchmarks. The reasoning: Nvidia's expanding free-cash-flow returns to shareholders now look more like a mature dividend payer than a pure hypergrowth stock.
As of July 31, the Vanguard Russell 1000 Growth ETF (VONG) carried a 14.6% weighting in Nvidia. That compares with a 7.6% weighting in the Vanguard S&P 500 ETF. The next index shake-up takes effect in December, and the analyst expects Nvidia's growth-only classification to change.
A twice-yearly reshuffle nears
The London Stock Exchange Group runs the Russell 1000, the 1,000 largest U.S.-listed stocks by market cap, and shifted its reconstitution period from annual to semiannual earlier this year. The analyst expects Nvidia's weighting to split between the Growth and Value indexes rather than sit solely in Growth, since LSEG allocates the market cap of stocks like Apple and Microsoft between both indexes instead of an all-or-nothing approach.
Buybacks and dividends reshape the story
Nvidia's case for value-index inclusion rests on cash returns. The company returned a record $26 billion to shareholders last quarter through buybacks and its dividend. It also raised that dividend by 2,400% earlier this year. Nvidia targets returning at least 50% of free cash flow to shareholders. It has already returned 60% of FCF so far this fiscal year.
The company is also broadening its customer base beyond hyperscalers to AI labs, AI start-ups, and AI clouds. On its Aug. 26 second-quarter fiscal 2027 earnings call, Nvidia forecast 70% revenue growth for fiscal 2028. Its new Vera Rubin platform, which began shipments in August, is expected to account for 20% of data center revenue in the coming quarter. At 23.4 times forward earnings, Nvidia trades close to the S&P 500's forward multiple of 20, a valuation the analyst called reasonable for a company generating that much free cash flow.
Source: The Motley Fool
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