Stock buybacks will exceed $1 trillion next year for the first time, fueled by strong earnings at Big Tech companies such Apple, Microsoft, Nvidia and Meta Platforms, Goldman Sachs strategists said.
S&P 500 companies should repurchase $925 billion worth of their own shares this year, a 13% annual gain, up from Goldman's initial forecast of 4%. Buybacks should then climb 16% in 2025 to $1.075 billion.
Buybacks, by reducing shares outstanding, boosting earnings per share.
S&P 500 Stock Buybacks
| Year | In billions | Yearly change |
|---|---|---|
| 2010 | $319 | 16% |
| 2011 | $467 | 46% |
| 2012 | $413 | -12% |
| 2013 | $496 | 20% |
| 2014 | $565 | 14% |
| 2015 | $592 | 5% |
| 2016 | $553 | -7% |
| 2017 | $540 | -2% |
| 2018 | $840 | 55% |
| 2019 | $749 | -11% |
| 2020 | $538 | -28% |
| 2021 | $919 | 71% |
| 2022 | $950 | 3% |
| 2023 | $815 | -14% |
| 2024e | $924 | 13% |
| 2025e | $1,075 | 16% |
"Earnings growth is the most significant driver of share repurchases at the index level, explaining about half of the year-to-year variation," strategists Cormac Conners and David Kostin said in a March 6 note. They said Goldman recently upped its 2024 and 2025 earnings forecasts for the S&P 500 "due to the improving economic growth environment and stronger than previously expected megacap tech margins and earnings."
Tech growth will be fueled by "strong consumer spending and increased demand for AI-related products," they added.
Meanwhile, Treasury yields falling from October's longtime highs help. Fed rate cuts, expected to start in mid-2024, "should drive somewhat looser conditions by 2025."
Magnificent Seven Buybacks
The Magnificent Seven are likely to drive a substantial portion of S&P 500 buyback growth," Goldman's strategists said. "Despite the group having grown net income by 43% in 2023, aggregate buybacks for the group fell 11%." The Magnificent Seven, which includes Apple, Microsoft, Nvidia, Meta Platforms, Google parent Alphabet Amazon.comand Tesla, paid out just 58% of their net income on buybacks last year, the lowest since 2017, so they have scope to increase that ratio.
Even if they don't increase their payout ratio, strong earnings growth should still spur higher buybacks, Goldman said. Q4 filings show the Magnificent Seven is authorized to buy back $215 billion in stock, up 30% from the same time last year. Meta, Nvidia and Apple lead the way.
Big Tech companies could boost or initiate dividends, affecting buyback growth, Goldman cautioned.
On Feb. 1, Facebook parent Meta Platforms initiated its first-ever dividend. But it also announced a $50 billion buyback
Google and Amazon do not pay a dividend. but given their earnings, margins and low valuations, they are the first and ninth most likely Russell 3000 stocks to do so, Goldman points out.
Tesla had zero buybacks or dividends in 2023. With earnings likely to fall for a second straight year in 2024, that seems unlikely to change.
More broadly, giants in the Technology Select Sector SPDR ETF and Communication Services Select Sector SPDR ETF should fuel S&P 500 buybacks, offsetting energy sector declines.
Microsoft, Apple and Nvidia are the three largest XLK holdings, with Meta and Google dominating XLC.
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