Nvidia Changes Key Metric, Pressuring Tech Peers
Nvidia is dropping stock-based compensation from its non-GAAP financial metrics, a move that will make its profits look bigger. The change puts pressure on other tech firms to follow suit, potentially altering how Wall Street evaluates profitability across the sector. The move comes as analysts see March as a pivotal month for the high-flying stock.
Stock-based compensation (SBC) has long been a controversial exclusion from the adjusted, or non-GAAP, earnings that tech companies report. Critics argue that omitting this significant expense, which is paid to employees in the form of equity, presents a distorted picture of a company's true profitability. In a move toward greater transparency, Nvidia announced it will *include* stock-based compensation in its non-GAAP financial results starting in the first quarter of fiscal 2027. The company stated that SBC is a "foundational component" of its compensation program to attract and retain talent and will no longer be excluded from its primary profitability metrics. The financial impact of this change is notable. For its first quarter of fiscal 2027, Nvidia projected that including this expense would add approximately $1.9 billion to its non-GAAP operating costs. In fiscal year 2026, the company's stock-based compensation totaled $6.386 billion, a figure that had grown by nearly 35% year-over-year. By including this expense, Nvidia is tightening its own definition of adjusted profits, a move that signals confidence in its ability to generate strong earnings even with a more conservative accounting approach. This contrasts with the common industry practice where tech firms often exclude SBC to make their core earnings appear higher. This decision places pressure on rivals like Broadcom and AMD. The impact of including SBC on Nvidia's adjusted earnings per share is estimated to be only around 3%, whereas for some competitors, that figure could be over 20%. As a result, Nvidia's valuation may look more attractive on a relative price-to-earnings basis, potentially compelling peers to adopt similar, more transparent reporting.
