Companies aren’t buying back their stock like they used to, and that’s a potential warning sign for the market, Ned Davis Research says
The research firm flagged waning stock buybacks among S&P 500 companies in the first quarter — a possible sign that some firms in the benchmark index aren’t in a position to shell out and return money to investors
Net stock buybacks in 2025 surpassed $1 trillion in each quarter, though repurchase agreements slipped slightly below the $1 trillion mark in the first quarter of this year, NDR said, citing its analysis of S&P data
Overall, stock repurchases in the benchmark index remain near records, but activity is weaker in specific sectors of the market
Communications, an area in which firms have been eager to buy back their own stock, has seen a “steep drop off” in repurchase agreements the last two quarters, NDR said, with net repurchases falling to around $186 billion in the first quarter, down from a recent peak of over $230 billion
Tech, another area where stock buybacks have boomed in recent years, has also seen repurchase activity stall, with net buybacks declining to $250 billion in the first quarter, down from their recent peak of over $260 billion
“Aggregate buyback data hides the fact that a growing percentage of companies are not in as strong of a position to repurchase their own stock as they have been for much of the past decade,” the firm wrote, pointing to the discrepancy between buyback data for the broader index and individual sectors
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More investors are on guard and bracing for broader market turbulence, particularly as volatility rips through the AI sector this summer
Concerns have also been rising in particular about the financial health of some AI giants, who have doubled down on their capex spending despite monetization plans remaining in the early stages for many
Goldman Sachs wrote earlier this year that colossal capex was coming at the expense of buybacks, with the decline in repurchases largely concentrated in the tech sector
Capex spending at Alphabet, Meta, Microsoft, and Amazon — four of the biggest AI spenders on Wall Street — is on track to grow 77% this year, according to an estimate from the veteran tech investor Gene Munster
Spending is also being funded increasingly with debt. Among Alphabet, Amazon, Meta, Microsoft, and Oracle, incremental annual debt as a percentage of capex has climbed from 9% to 32% since 2024, according to a recent FactSet analysis
Free cash flow is expected to move “close to zero or turn negative” at Amazon, Meta, and Oracle this fiscal year, the firm added
