How Nvidia can take a page out of Apple's playbook

First of all, welcome to everyone who joins us for the first time. Your participation in the CNBC Investment Club is very important to us. As a wonderful Club member explained as we gardened together this weekend, we aim to do right by you. He couldn't believe how much he had learned and how much more he had accomplished from it. I can only express my gratitude to him. That's why - at Goldman Sachs from 1983 to 1987 and at Cramer & Co from 1987 to 2001 - I thrived in the process of making money for the richest people in the world. For most, this meant little. I was also part of an allocation. I crushed it, for lack of a better verb, but I received thanks only from one soul, a very rich and creative soul, and no one else. But that's not how things work at the Club anymore. My gardener friend expressed his happiness in learning about the stocks. It wasn't because the cost was a microscopic percentage of what I used to charge. Because he could understand why stocks rose and fell. We discussed the frustration with Microsoft and whether it should be discontinued. I expressed my skepticism about the company in the age of AI and what it might do to its basic, unwieldy Windows product, but I was skeptical that the cloud and software giant's incredible CFO, Amy Hood, would tolerate such poor performance. I wondered if I was getting too close to Marc Benioff, a special man who invented a company with a product I love, and here I'm talking about Salesforce, which has $40 billion in revenue. It's a small position in the club's portfolio and a painful one at the moment. I want to give Salesforce and struggling Nike another quarter, and then I'll have to try the "crow a la mode" lunch. Nike got this chance because his last quarterly conference call gave him the right to endure endless pain. Either he got up or nothing happened. We talked mostly about the winners, including our two "own, don't trade" names, Apple and Nvidia. Apple's quiet rise is a joy. It closed at a record high of nearly $309 per share on Friday; It is currently up about 13.5% year-on-year. But who wouldn't worry about the retirement of the great CEO Tim Cook? There's enough trouble in this proverbial fire that CEO-in-waiting, hardware guru John Ternus, can weather the perpetual earnings disaster. How about Nvidia? Let's talk about this. Nvidia still gives me great pleasure. This weekend I bought eggs, ham (not Taylor Ham unfortunately) and cheese. Upon my order, the cook wrote "Nvidia" on the ticket, not my name; Another proud member of the club. I was tickled. But we're in the "what have you done for me lately" thing. I wish I could explain what needs to be done during the trade to get this stock back in the hunt. There's no denying that Nvidia really lost its luster this quarter. It was indeed a big blowout, but it sent the stock noticeably backwards, meaning the earnings surprise no longer matters for this giant. The stock success ordeal is over. Its market value has been thoroughly eroded. The title of world heavyweight stock champion will soon go to someone else. As long as it lasted, it swelled. Or should there be a question mark at the end of this sentence? I am not sure. But it got me thinking. What do you do about being the best, facing a tremendous surprise, and still facing more than just failure? Of course, you could say the stock is up from $180, and its rise to a record close of nearly $236 on May 14 (less than a week before last Wednesday evening's earnings call) is a rally that won't last long. I can handle this analysis, but we're talking playoffs here and you're only as good as your last effort. Other stocks gained. Is it time for us to admit defeat and strip the stock of its "own, don't trade" title? Maybe. But I think it's time for the company to start on a different path regarding capital allocation; It's a strategy that has served Apple well for all these years. Long ago, Apple's Luca Maestri became the first CFO to truly understand the power of raw cash on the balance sheet and what it could mean for shareholders. My life and my time with his 10+ year regime were sometimes tumultuous, mostly due to my ignorance and determination to need to grow by acquisition. A long, long time ago, I once suggested that Apple should buy Netflix; Considering it was worth $25 billion at the time, I now think this thing falls into the category of being lucky, not good. With finicky hardware like Apple, you can only live with this desire for a short time. The important thing was organic growth, and Apple achieved that in spades. But under Cook, this was never enough. Tim could invent a water-powered car and that wouldn't be enough for some greedy shareholders and critics who often say his best times are behind him; This was first heard when this $4.5 trillion company was trading at around $500 billion (yes, billion with a "B") instead of a price that could beat Nvidia at those speeds. Nvidia is still a $5.2 trillion company. Not too shabby. So what would Luca do with Nvidia? I guess he wouldn't even tolerate such prolonged underperformance. He would aggressively pursue a dual plan for a massive increase in the dividend each year, accompanied by a massive buyback that would lead to the retirement of more than a third of the shares within a decade. I know Warren Buffett often talks about his trip to Dairy Queen (where he watched teenagers glued to their iPhones) and that trip led to him taking a position in Apple stock. If it weren't for the $35 to $36 billion he had accumulated at the beginning of 2016, this would always have been nothing more than a curiosity. What made this his biggest position was something else entirely, something that was his first love: a masterful buyback and a generous dividend. The king of stocks has always declared that his true love of owning a stock focuses on how the company allows him to become an increasingly larger part of the business, simply by buying back his own shares and forever sharing the income and bonus that comes with that process. Apple's products were its starting point, buybacks and dividends were its bread and butter. It's time for Nvidia to accept its status as a solid manufacturer and do more for shareholders than it ever has. It must recognize that graphics processing units (GPUs), central processing units (CPUs), and networking products are up front, while buybacks and dividends are the bread and butter. The chip powerhouse, led by Jensen Huang, kicked off the process by offering a sizable (some might say gigantic) buyback and a decent-sized dividend. However, neither of them can reach the sky that Apple offers. Nvidia needs to signal to investors that it wants to shrink its float (currently 24.2 billion shares) while increasing buybacks, regardless of what CPU or GPU or, for all I know, quantum computing has to offer. Given all that needs to be done to stay ahead, how can Nvidia be sure to do this? I think applying existing cash is not enough. After Jensen's frequent victories in the process of determining the winners, Nvidia needs to begin a systematic reduction in the size of its investment. Take Intel. Nvidia bought $5 billion worth of Intel shares at $23.28 each. Intel is currently at $119 (not far from its record close of $129 on May 11). I think Intel will rise even higher. But if I were running Nvidia's books, I'd say it's time to cut costs and play with the house's money. That's a return well beyond the $5 billion invested. This investment can easily be repurchased. More may be robbed each year. Other investments can play the same role. As each is done, others must emerge. It is unlikely that investee companies will generate this much loyalty. They are still playing on the field. Secondaries could be some form of shareholder payback that would change the equity equation, as it did for Apple. This will provide support that many people did not expect from a semiconductor company, as there is a possibility that the law of large numbers will be defeated. Unfortunately, there is no Buffett to take advantage of the moment. But he has enough helpers that we have to assume his shareholder base will become more of a mainstay than a sadly unstable one. I'm not asking for an annual weekend of love—that's why we have Nvidia's annual GTC event—I'm just saying that an epoxied group of shareholders can stop the tyranny of a wall of options holding stocks back. Did you catch the picture of all the calls I showed from the New York Stock Exchange? Each is working against the increase in value as the professionals crush the excessive enthusiasm represented by the high bonuses created by the amateurs. They are gluttons for punishment. Without this capital return program, I'm afraid we'll soon be forced to question the logic of the big position in Nvidia. No, not an exit, just an acknowledgment that the punching bag nature of being a shareholder can lead to an exit every round, and I don't want to wait for the referee to raise the hand of the winner and new champion. Why would I think the Apple program would work? Because Apple does not have explosive growth. This ended years ago. It is only the consistency of return on capital that matters. However, I will return to my family and garden at the appointed planting time. We will be holding a Club meeting this week. I hope you'll join us. Jim Cramer's Charitable Trust is long CRM, NKE, AAPL, NVDA. See here for a full list of stocks.) When you subscribe to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trading alert before buying or selling a stock in his charitable foundation's portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after issuing the trading alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH THE DISCLAIMERS. NO CIVIL OBLIGATIONS OR DUTIES EXIST OR SHALL BE RESULTING FROM YOUR RECEIVING ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR PROFIT CAN BE GUARANTEED.