Artificial intelligence (AI) stocks are some of the hottest names on Wall Street. But did you know that many of these stocks also boast significant share buyback programs?
Today, let’s examine three such stocks: Meta Platforms (NASDAQ: META), Microsoft (NASDAQ: MSFT), and Nvidia (NASDAQ: NVDA).
Image source: Getty Images.
Meta Platforms’ Cash Flow Powers Stock Repurchase
Jake Lerch (Meta Platforms): My choice is Meta Platforms, thanks to its $50 billion share buyback program and fantastic free cash flow.
Why do I link the share buyback and free cash flow? Well, if share buyback programs were airplanes, free cash flow would be their fuel. Simply put, a buyback plan would crash and burn without ample free cash flow. That’s because companies use free cash flow to fund their buyback plans.
Thankfully, Meta is awash in cash profits. Over the last 12 months, the company has reported $49 billion in free cash flow, or $18.83/share. Over the last five years, Meta has increased its free cash flow by 154%.
META Free Cash Flow data by YCharts
Meta has achieved this incredible cash flow thanks to its asset-light business model. The company’s average operating margin over that five-year period is an outstanding 35% — topping other internet giants like Alphabet (27%) and Netflix (20%).
As the digital ad market continues to expand, Meta’s revenue and subsequently its free cash flow should expand too. Analysts expect Meta’s revenue to rise to $165 billion in 2025, up roughly 14% from this year.
In turn, the company’s cash pile should grow even larger. It stands at $58 billion, although the company also has about $38 billion in debt. Nevertheless, Meta has more than enough cash profits to cover its new dividend and share buyback program.
The dividend, introduced this year and first paid out in May, has cost the company about $2.5 billion this year. The total cost should rise to roughly $10 billion per year. That leaves Meta plenty of cash to keep buying back stock.
Shareholders have 60 billion reasons to like this share buyback
Will Healy (Microsoft): Software giant Microsoft has long stood out for its Windows OS and Azure cloud platform. As the world’s second-largest publicly traded company, it is used to going big and also plans to do so with its cash reserves.
Typically, its 10% dividend increase might constitute such a move by itself. However, that adds less than $2.2 billion to its dividend costs. What is likely more significant is it also approved a share repurchase program valued at up to $60 billion!
The Strategic Moves of Tech Giants in Buyback Programs
Microsoft Smartly Maneuvers its Buyback Program
Microsoft, a standout giant in the tech industry, is poised to make strategic moves with a hefty $60 billion share repurchase program. This bold maneuver comes amidst the company’s liquidity of a staggering $75.5 billion.
Although the company hasn’t committed to utilizing the entire allotted amount for buybacks, the sheer scale of Microsoft’s liquidity allows for various financial avenues, including share repurchases, sustaining annual dividend expenses of $24 billion, and efficiently managing a total debt of $45 billion.
Microsoft’s Cash Flow & Tech Innovations
Notably, Microsoft’s 2024 free cash flow surpasses $74 billion, a testament to its financial prowess. Bolstered by the success of its Azure platform and collaborations with OpenAI, Microsoft stands on the cutting edge of AI technologies.
The surge in AI adoption among consumers further cements Microsoft’s position in a beneficial cycle. As free cash flow potentially increases, it serves as a vital resource for funding share repurchases, thereby propelling stock price growth and attracting more investors to the fold.
Nvidia: A Sharp Focus on Share Repurchases
Nvidia, another tech powerhouse, has swiftly capitalized on its cash reserves with a $50 billion share repurchase program. Such initiatives, aimed at reducing outstanding shares, are instrumental in enhancing metrics like earnings per share and bolstering investor confidence.
Trading at an attractive forward P/E ratio with robust earnings growth projections, Nvidia’s prudent stock repurchases could play a pivotal role in amplifying investment returns over the foreseeable future.
The Power of Buybacks in Tech Investment
Buyback programs, like those adopted by Microsoft and Nvidia, hold the potential to add substantial value for shareholders, especially in opportune valuation scenarios. As these tech giants navigate through evolving market landscapes, strategic stock repurchases could pave the way for long-term investment prosperity.