Warren Buffett spent years criticizing the practice of increasing earnings by leaving out executive stock compensation, calling it ‘cynical’—now Nvidia has unexpectedly aligned with Wall Street’s expectations.

Nvidia’s Shift in Accounting for Stock-Based Compensation

Within the investor documents released by Nvidia last week—highlighting a record-setting $215.9 billion in revenue for fiscal year 2026 and a fourth-quarter revenue of $68.1 billion—there was a noteworthy update in the chief financial officer’s remarks that took many industry watchers by surprise.

“Starting in the first quarter of fiscal 2027, we will begin including stock-based compensation expenses in our non-GAAP financial metrics,” CFO Colette Kress stated in her prepared comments. She emphasized, “Stock-based compensation is a key part of our strategy to attract and keep top-tier talent.”

Why This Accounting Change Matters

While this adjustment might seem like a minor technical detail, it’s actually a significant shift. Like many technology firms, Nvidia has traditionally excluded stock-based compensation from its “adjusted” or non-GAAP financial results, which are published alongside official GAAP numbers. These non-GAAP figures—especially earnings per share—are the benchmarks Wall Street typically uses to evaluate company performance and set future expectations.

Some critics, including Warren Buffett, have long argued that omitting stock-based compensation, though legal, fails to reflect the true cost of compensating employees and can artificially boost reported profits. However, many companies defend the practice, claiming that removing these expenses gives investors a clearer view of the business’s core operations. Their rationale: stock-based pay isn’t a cash outflow, and it’s challenging for external analysts to accurately estimate the total each quarter.

The way stock-based compensation is treated can dramatically alter a company’s reported results—sometimes even turning a net loss into an “adjusted profit.” For example, software company Asana recently reported a net loss of $32.2 million for the fourth quarter, but after excluding stock compensation, payroll taxes on employee stock transactions, and other items, it announced a “non-GAAP net income” of $19.9 million.

The Impact on Nvidia’s Financials

For Nvidia, now valued at $4.4 trillion and recognized as the world’s most valuable company, aggressive hiring, substantial pay increases, and rising equity awards have significantly increased the cost of stock-based compensation. The competition for AI talent is fierce, further driving up these costs. Nvidia’s stock-based compensation expenses jumped from about $4.7 billion in fiscal 2025 to $6.4 billion in fiscal 2026—a 35% increase. Over the past year, Nvidia’s stock price has soared by 60%, though it did experience a slight dip after its most recent earnings report.

This context makes Nvidia’s decision to start including stock-based compensation in its non-GAAP results this quarter particularly unexpected.

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

Why Make the Change Now?

So why would Nvidia voluntarily give up an accounting practice that can make its results look better?

According to Jay Ritter, professor emeritus at the University of Florida, Nvidia’s profitability is now so high that excluding stock-based compensation no longer makes a significant difference. “For Nvidia, it’s remarkable how little impact it has, mainly because their profits are so large,” Ritter explained. “The stronger a company’s real profits, the less it needs to adjust the numbers.”

For instance, in 2020, excluding stock-based compensation allowed Nvidia to report non-GAAP operating income that was 28.3% higher than its GAAP figure. By 2025, this adjustment only boosted operating income by 4.7%.

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

While Nvidia can easily absorb these expenses and potentially gain favor with investors, the same isn’t true for all its competitors.

Industry Comparisons and Competitive Edge

Melius analyst Reitzes followed up with a research note analyzing Nvidia’s accounting change. The firm found that including stock-based compensation is standard among the “Mag 7” tech giants, making it easier to compare Nvidia with companies like Alphabet, Amazon, Apple, and Microsoft. Compared to other semiconductor companies, Nvidia stands out.

“If investors push Nvidia’s semiconductor rivals to follow suit and include stock option expenses in non-GAAP earnings per share, Nvidia holds a clear advantage,” Reitzes and his colleagues wrote. For companies like Broadcom, AMD, and Marvell, including these expenses would reduce EPS by 14% to 20%, while Nvidia’s impact is only about 3%.

They added, “If these competitors are forced to cut back on stock-based compensation due to investor pressure, Nvidia would be better positioned to attract talent and complete acqui-hires, since it can absorb the impact of these grants much more easily.”

When asked why Nvidia chose to make this change now, the company referred Fortune to its official filings.

Warren Buffett’s Longstanding Critique

Nvidia’s new approach addresses a longstanding issue with compensation structures that has bothered Berkshire Hathaway Chairman Warren Buffett for years. To clarify, Berkshire Hathaway does not own Nvidia shares; its main holdings include Apple, American Express, Coca-Cola, and Moody’s, as detailed in its latest annual report. Still, Buffett has frequently criticized executive compensation practices at other companies. In his 1992 letter to shareholders, he argued that the rationale for excluding stock-based compensation because it’s an estimate is weak at best.

“Shareholders should recognize that companies incur costs when they provide something of value to another party, not just when cash is exchanged,” Buffett wrote. “Moreover, it is both silly and cynical to claim that a significant cost should be ignored simply because it can’t be measured with absolute precision.”

In 2018, Buffett criticized the practice of presenting “adjusted EBITDA” figures that exclude “a variety of all-too-real costs.”

He also remarked, “Managements sometimes assert that their company’s stock-based compensation shouldn’t be counted as an expense,” adding wryly, “What else could it be—a gift from shareholders?”

This article was originally published on Fortune.com.