In a world where the bulls roam freely on Wall Street, the three major stock indexes – the venerable Dow Jones Industrial Average, the benchmark S&P 500, and the tech-haven Nasdaq Composite – have soared to unprecedented heights in 2024 after a trying year in 2022 when they tumbled into bear market territory.
The ascent of the market cannot be attributed to a singular cause but is a symphony of factors, including a robust U.S. economy, stellar corporate earnings, the advent of artificial intelligence (AI) as a game-changing trend, and notably, a surge in share repurchases by public companies.
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Despite a dip in aggregate corporate share buybacks from the record levels seen during the 2022 bear market, S&P 500 companies shelled out a hefty $787.3 billion on share repurchases in the trailing 12 months ending September 30, 2023, well above historical averages.
The rationale behind public companies launching share repurchase programs is manifold:
- By steadily reducing outstanding shares, companies with stable or growing net income can enhance their earnings per share (EPS), making them more appealing to investors.
- When a company buys back its common stock, it bolsters long-term shareholder ownership, fostering investor loyalty.
- It serves as a testament to a company’s board’s confidence in its enduring growth strategy.
While over 56% of S&P 500 companies repurchased at least $5 million of their stock in the quarter ending September, a select few stand out for their massive buyback endeavors.
Since 2013, three prominent companies have collectively repurchased an astounding $1.07 trillion of their own shares.
Apple: The Titan of Stock Repurchases
When it comes to stock buybacks, tech behemoth Apple (NASDAQ: AAPL) reigns supreme. Since initiating its buyback program in 2013, Apple has snapped up a staggering $651 billion of its shares.
For context, there are merely eight companies in the S&P 500, excluding Apple, with a market cap surpassing $651 billion. Apple’s expenditure on buybacks could have easily acquired 491 out of the other 499 S&P 500 companies.
Apple’s cash surplus for stock repurchases is underpinned by unwavering brand trust and immense innovation. A survey revealed that a whopping 92% of iPhone users had no intentions of switching brands during their next smartphone purchase.
While reducing its share count by 41% since 2013 has buoyed Apple’s EPS, the company’s growth narrative warrants scrutiny. Despite a $0.02 EPS uptick in fiscal 2023, Apple’s net income dwindled by $2.8 billion to $97 billion for the year, hinting at growth hurdles beyond its buybacks.
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Alphabet: Spearheading Buybacks with Finesse
Another standout in the S&P 500 landscape, Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG), the parent of Google, has been escalating its stock repurchases since 2015. With $240 billion allocated to buybacks, Alphabet could virtually own all but 28 S&P 500 companies excluding itself.
Alphabet thrives on its near-monopoly with Google, commanding over 90% of the global internet search market share for nearly a decade and benefitting from premium ad prices.
Progress in the Google Cloud segment, turning profitable in 2023 after years of losses, poses a significant growth avenue for Alphabet, as cloud services promise fatter margins compared to advertising.
Microsoft: Powering Ahead in the Buyback Arena
The third powerhouse pacing the buyback marathon is tech titan Microsoft (NASDAQ: MSFT). Spanning over a decade of stock repurchases, Microsoft has retired around $183 billion of its common stock since 2013, surpassing the market caps of all others.
