Warren Buffett complained for decades that boosting profits by excluding exec stock comp was ‘cynical’—Nvidia just surprised Wall Street and agreed

Tucked neatly inside the investor materials Nvidia produced last week to show its record full fiscal year 2026 revenues of $215.9 billion and a fourth quarter revenue beat of $68.1 billion, were a few lines in the chief financial officer’s commentary that caught even some close observers of the company by surprise.

“Beginning in the first quarter of fiscal 2027, we will include stock-based compensation expense in our non-GAAP financial measures,” chief financial officer Colette Kress noted in her prepared commentary. “Stock-based compensation is a foundational component of our compensation program to attract and retain world-class talent.”

It may sound like a bit of financial minutiae but it’s actually a notable move. Like a lot of tech companies, Nvidia has historically left stock-based compensation out of what are called the “adjusted” financial figures it publishes along with its official GAAP results. Those adjusted figures—particularly a company’s earnings-per-share number—are known as non-GAAP figures, and they are typically the ones Wall Street uses to assess performance and set targets for the next quarter.

Critics, including Warren Buffett, have long argued that leaving out stock-based compensation, while perfectly legal, understates a company’s true cost of paying employees and inflates profitability. But many companies insist they’re giving investors a more accurate snapshot of the business’ core performance by removing the expense: Stock-based pay isn’t cash, the logic goes, and it can be difficult for outside analysts to properly estimate the total each quarter in their valuation models.

What’s clear is that the same company’s financial results can look different depending on how stock-based compensation is accounted for—sometimes even turning a bottom-line loss into an “adjusted profit.” Consider software maker Asana, which recently posted a net loss of $32.2 million in its fourth quarter, but announced “non-GAAP net income” of $19.9 million by removing the costs of stock compensation, payroll tax on employee stock transactions, and other items.

For $4.4 trillion Nvidia, the world’s most valuable company, hiring plus hefty pay increases and equity gains are driving up the cost of stock-based compensation. Not to mention, there is quite a bit of competition out there for AI-related talent, which has made the hiring landscape incredibly competitive. The price tag for Nvidia’s stock-based comp rose from roughly $4.7 billion in fiscal 2025 to $6.4 billion in fiscal 2026, a 35% jump. Meanwhile, the stock price has risen dramatically, up 60% over the past year alone, although it took a small tumble following its latest earnings release last week. 

That’s what made Nvidia’s announcement that it would include stock compensation beginning in the current quarter so surprising.

“First, let me say kudos on including the stock-comp in non-GAAP,” Ben Reitzes, partner and head of technology research at Melius, said to Nvidia’s management during the company’s earnings call last week. “I think that’s a great move.” 

The thrill is gone

But why is Nvidia voluntarily forfeiting an accounting maneuver that helps companies gussy up their results?

According to University of Florida professor emeritus Jay Ritter, Nvidia has gotten so profitable that excluding stock compensation cost doesn’t really provide that much of a benefit anymore. “For Nvidia, it is amazing how little difference it makes, largely because of how big their profits are,” Ritter said via email. “The better are a company’s true profits, the less it needs to massage the numbers.”

In 2020, for example, excluding stock based compensation allowed Nvidia to report non-GAAP annual operating income that was 28.3% higher than its GAAP operating income. Doing the same thing with Nvidia’s 2025 results however provided only a 4.7% boost.

Ritter, now the director of the IPO Initiative in the Eugene Brigham Department of Finance, Insurance, and Real Estate at the University of Florida, noted that with roughly $116 billion in after-tax profits and 42,000 employees in 2025, Nvidia’s roughly $3 million profit per employee is barely affected by including stock-based compensation of $150,000 per employee.

And if including stock-comp expenses lets Nvidia score brownie points with Wall Street without much sacrifice, the same cannot be said of all its competitors.

Melius analyst Reitzes followed up on Monday with a research note analyzing the Nvidia accounting change. According to the firm’s analysis, including stock-based expenses is standard among Mag 7 stocks, which makes it a little easier now to compare Nvidia to Alphabet, Amazon, Apple, and Microsoft. But compared to other semiconductor stocks, Nvidia got a glow up. 

“If investors force Nvidia’s competitors in semis to follow its lead and include stock option expenses in Non-GAAP [earnings per share], Nvidia has distinct advantages,” Reitzes and his coauthors wrote in their note. Including the expense in non-GAAP earnings would lead to a 14% to 20% hit to EPS at companies including Broadcom, AMD, and Marvell, according to Melius. Nvidia’s hit is about 3%. 

“Also, if these peers need to rein in stock comp due to investor pressure, Nvidia would have an advantage in recruiting talent and completing acqui-hires since the impact of these grants are so easily absorbed vs. peers,” Reitzes and others wrote. 

When asked about what motivated Nvidia to make the change at this time, the company directed Fortune to its official filings.

A long-running Buffett beef

The change Nvidia made aligns with a structural compensation design issue that appeared to irk Buffett, the Berkshire Hathaway Chairman, for decades. To be clear, Berkshire does not own stock in Nvidia. It holds some $298 billion with its core holdings in Apple, American Express, Coca-Cola, and Moody’s, according to its latest annual report. But Buffett has long listed his kvetches with executive compensation design and practices at other companies. In his 1992 chairman’s letter, Buffett wrote that the justification for backing out stock-based compensation because it was an estimated figure was underwhelming, to say the least.

“Shareholders should understand that companies incur costs when they deliver something of value to another party and not just when cash changes hands,” Buffett wrote.  “Moreover, it is both silly and cynical to say that an important item of cost should not be recognized simply because it can’t be quantified with pinpoint precision.”

In 2018, he wrote that Wall Street bankers and corporate CEOs were presenting “adjusted EBITDA” measures that excluded “a variety of all-too-real costs.” 

“Managements sometimes assert that their company’s stock-based compensation shouldn’t be counted as an expense,” Buffett wrote, before quipping parenthetically: “What else could it be — a gift from shareholders?”

This story was originally featured on Fortune.com