Record stock buybacks -- contrarian signal or boost for market?

Investment Analysis Clubs Macro Economic Trends and Risks
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https://www.wsj.com/finance/stocks/stock-buybacks-2025-3b0ddedd?mod=finance_lead_pos5

American Companies Are Buying Their Own Stocks at a Record Pace

Buybacks are expected to top $1.1 trillion in 2025, led by big banks and tech firms

By Krystal Hur, The Wall Street Journal

…

The biggest repurchasers include tech giants Apple and Google parent Alphabet. Big banks such as JPMorgan Chase, Bank of America and Morgan Stanley also are leading the charge….

Both companies and investors often applaud buybacks because the practice reduces the number of shares available to trade, driving up earnings per share and often boosting stock prices. …

But the practice is controversial in some quarters, with skeptics contending that repurchases serve to prop up the market at a time of already stretched valuations. Some analysts worry that the preference for buybacks over longer-term commitments such as investing in factories or offering dividends suggests President Trump’s trade war stands to weigh on growth over time.

Skeptics also say companies tend to repurchase shares when they are rising rather than when they are relatively cheap, making buybacks an inefficient use of extra cash…But many analysts say they expect the buying binge to boost indexes, already lifted by solid corporate earnings, and fuel the stock rally for now…. [end quote]

I like dividends so I think that extra cash should be sent to shareholders as a dividend if the company can’t think of any productive use that would boost profitability into the future. (Such as research or a new factory.) But it’s better than blowing the cash on overpaying for a money-losing acquisition (which has happened many times).

It doesn’t make sense to me to buy back shares when the market is so overvalued. On the other hand, maybe corporate honchos actually think their shares are undervalued because they are expecting increasing profits?

In any case, pumping a Trillion into the stock market is bound to push up share prices. This is bullish.

Wendy

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Companies have been using buybacks for a long time. One quarter in the late 80s, then Tandy Corp, RS’ parent, reported net GAAP profit down, but, bought back enough stock that quarter, for EPS to be up, which may have misled investors that everything was hunky dory, when the wheels were actually starting to come off the company.

We have seen how the CEO of Boeing inherited a well run, soundly financed company, then spent every nickle of profit, and ran up debt, to buy back stock.

I would suggest that a significant increase in buybacks, instead of “investing to create jobs” shows that CEO personal greed is in full flower, knowing that the present regime will not give them the stink-eye for hobbling the company in pursuit of personal wealth.

Steve

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The old adage applies, it not a stock market but a market of stocks. So stock buy backs are company dependent as to why.

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I think the “why“ is pretty simple. Upper tier management compensation is heavily lopsided in favor of “stock price” and not “paycheck.” When they are out of ideas for quick new growth, “stock buyback” is an easy go-to.

It is, however, often bad, as Texirish explained over on Shrewdm.com :slight_smile:

Buybacks are nothing more than investing a company's cash in the future prospects of the company. That may, or may not, be a good judgment. That's why Buffett requires a margin of safety in his "conservative" estimate of IV before doing a BRK buyback. And even made it a requirement of his board - a formal test of his judgment.

Buybacks only impact the future returns to shareholders. But there’s nothing immediate about them. So calling them an immediate return to shareholders is simply wrong.

What do you get when you do a buyback? You exchange cash - with its own current value versus inflation - against the FUTURE prospects of the company you’re investing in. Not really any different than investing the cash in a different company outside your own. There’s really no difference. It’s a bet on the future on your own, or someone else’s, company.

With the market as puffy as it’s been in decades, I would say most buybacks are going to be seen in the rear view mirror as wasted capital.

More on this post & thread: Post #15940 by Texirish on the Berkshire Hathaway board

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Stock buybacks also hide the amount of dilution that occurs with all the options awarded to management. Many companies are diluting stock to the tune of 2% or more per year. I would rather own companies that control themselves when it comes to granting options, and just pay people more. I would also love to see c suite pay revert to a rational level. When you have c suite people in the s&p 500 serving on multiple boards, and some on multiple compensation committees,you have massively escalating pay packages. The boards of the s&p 500 include roughly 5 to 6 thousand like minded individuals and the shareholders have almost no say.

Jk

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“Ideas” are hard. They don’t come on a schedule. Implementing them is hard too. Often takes invention, planning, and investment. The idea might not work, and the investment is lost. No work, and no risk, involved in a buyback. The “JC” can stay out on the golf course, while EPS automatically goes up, which pushes the price of the stock up, and more loot flows into the “JC’s” pocket.

Steve

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A situation that has steadily worsened over my lifetime, and a damning statement regarding entrenched corruption in USA capital markets and society. Most damning of all is that more than half of adults in the USA would find this thread close to unintelligible. But the stench of upper class power, privilege, and manipulation comes across despite the obscurity of the analysis for most citizens.

I remember noticing with horror/disgust the steady rise into the upper ranks of BofD of some of the most pudding-headedly useless of my born to riches classmates.

I expect that “a hard rain’s gonna fall” within a decade, and either the USA loses its democratic Republican structure (sorry Ben Franklin, we just couldn’t “keep it” as democratic sloth broke our remaining virtues), OR, a democratic resurgence does a very big wash of our very own, too long neglected, Augean (the legend says 30 years of horse mess?) Stables….

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Too often, Boards of Directors milk the company. Instead of investing in research and new product development to expand their market, they take the money out of action and put it into stock buy backs, which boosts the share price and their personal wealth. It doesn’t do much for the company, though.

It attests to their lack of faith in their company’s product and service, and their customer’s willingness and ability to pay for it.

Or, it’s just shallow greed.

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This may be a big bet on AI. If a company like Google believes AI is going to replace a lot of its labor needs and increase productivity (thereby increasing profits) in the near future, then the smart thing to do is to buy back stock while simultaneously laying off workers.

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AI has yet to show a significant use that will be productive and profitable, other than reducing labor costs.

Seems like the snake is eating its own tail.

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Companies Are Pouring Billions Into A.I. It Has Yet to Pay Off.

Corporate spending on artificial intelligence is surging as executives bank on major efficiency gains. So far, they report little effect to the bottom line.

Nearly four decades ago, when the personal computer boom was in full swing, a phenomenon known as the “productivity paradox” emerged.

It was a reference to how, despite companies’ huge investments in new technology, there was scant evidence of a corresponding gain in workers’ efficiency.

Today, the same paradox is appearing, but with generative artificial intelligence. According to recent research from McKinsey & Company, nearly eight in 10 companies have reported using generative A.I., but just as many have reported “no significant bottom-line impact.”

https://www.nytimes.com/2025/08/13/business/ai-business-payoff-lags.html

The article notes that 42% of companies with AI projects have abandoned them in the face of problems, customer pushback, or the fact that AI simply sometimes makes stuff up.

Nobody doubts that AI will be a major force in the years to come, but so far the only ones profiting from it are the AI companies themselves and the picks and shovels sector:: Nvidia, Microsoft, etc. This is what some call “the trough of disappointment”, similar to what happened with the PC, when companies bought them by the thousands only to find out that all they had really done was replace secretaries’ typewriters with expensive word processors.

So far the biggest successes seem to be providing chatbot help for call center operators perhaps helping customers get to a solution quicker and trimming a few minutes off calls. There’s little question that other things will develop, and some will fail, but so far, much sturm, not much drang. There will be more, but it isn’t showing up yet. Even JP Morgan says it has shut down hundreds of AI experiments so far. Well, at least that’s a good sign.

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And the required 20 characters…

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What! Corporation goal is profit. Keeping employee’s pay down pads the bottom line. CEOs are the driving force of that goal. It is a tough job that requires commensurate compensation. No whining from the professional class about CEO pay. That’s just your jealousy talking. This is the way it has always been done. And the stock market returns is the proof of the pudding.

Now back to the original question. Stock buybacks are a boost for the market!

Shareholder Value! If there was a hall of Fame for CEO’s-Jack Welch would be #1!

CEO’s noblesse oblige has benefited society. Jeff Bezos $10 donation to to the Bezos Earth Fund to fight climate change and protect nature is just one example.

This message has been brought to you by “Bow Down to Your CEO” pac

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