NVDA - How Stock-Based Compensation Impacts Your Favorite Tech Stocks

2024-07-24 11:51:35 ET

Summary

• The mega-cap tech stocks have been rapidly increasing their use of stock-based compensation (SBC) in recent years, and this can add a level of complexity to valuation analysis.
• SBC should be considered a real expense, and I make adjustments for it in all my valuation assessments.
• Metrics and takeaways are provided on Apple, Microsoft, NVIDIA and Alphabet's usage of SBC. Some comparisons of the 4 companies are performed.
• Alphabet is set to report earnings on July 23 (after market close), Microsoft on July 30, Apple on August 1, and NVIDIA on August 28.

Stock-Based Compensation ((SBC)) is a practice that originated some 75 years ago, as some companies began offering their management personnel opportunities for a stake in their employer's equity as an alternative to, or in replacement of, cash salary and wages. Remember that this was back in the day when discount brokerages didn't exist, meaning significantly fewer individuals had the means to own stocks.

This article really isn't about the advantages for a company having their employees invested in shares of the company stock, nor the advantages for those employees. However, indeed those are generally understood to be good things....

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