As concern about a weakening economy increase, most S&P 500 ($SPX) (SPY) companies are cutting their spending on their stock buyback programs. However, mega-cap technology stocks are bucking that trend and are maintaining most of their buybacks. The strong cash flows of the mega-cap tech companies are allowing them to keep spending on stock buybacks, a major bullish factor for their stock prices.
The four biggest companies to spend on stock buybacks last quarter, Alphabet (GOOGL), Apple (AAPL), Microsoft (MSFT), and Meta Platforms (META), bought about $50 billion of their own shares, according to Bloomberg data. While that’s down -10% from the same period last year, it is significantly better than the -24% decline in buybacks for the rest of the stocks in the S&P 500.
The ability to maintain their buybacks has investors flocking to the mega-cap technology stocks as a haven amid banking turmoil and concern about slowing economic growth. Treasury Partners said, ”Big tech’s ability to increase buybacks and cut costs in volatile markets without impairing revenue growth is the main reason why they have outperformed the broader market in recent months.”
Unlike dividends, which remain relatively steady during times of economic stress, stock buybacks can fluctuate depending on the economic circumstances. Buybacks by U.S. companies dropped at the onset of the Covid-19 pandemic, then soared to a record as the economy reopened, before retreating again this year as rising interest rates curbed economic growth.
Mega-cap technology stocks have benefited from keeping up their pace of stock repurchases. Apple, Alphabet, and Microsoft are up more than +25% this year compared with an advance of +7.8% for the S&P 500, while Meta Platforms has rallied more than +90%. Horizon Investments said, “These companies still print lots and lots of cash, and they’ve got to find somewhere to deploy that cash.” Also, Roundhill Investments said, “These companies recognize that as the investor base has transitioned from growth to more value, they need to distribute more capital to shareholders.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
