Buybacks at Record Pace Despite Capex Boom
In the first nine months of 2026, the five largest US tech companies—Apple, Microsoft, Alphabet, Amazon, and Meta—repurchased $380B of stock, a 22% increase from 2025. This comes even as their combined capital expenditures reached $220B, up 45% year-over-year, driven by AI data center buildouts. The discrepancy has been funded by drawing down cash reserves and issuing $85B in new debt, the highest since 2021. Free cash flow for the group fell 18% YoY to $310B, raising questions about sustainability.
Funding Squeeze Emerges
With cash piles shrinking—Apple’s cash declined to $45B from $70B a year ago—companies are turning to bond markets. Microsoft issued $20B in August, while Meta raised $15B in September. Credit default swap spreads for the tech sector have widened 25bp since June to 85bp, reflecting growing investor unease. The 10-year Treasury yield at 4.45% makes borrowing costlier, and rating agencies have begun to flag negative outlooks for firms with aggressive buyback policies. “The era of self-funding buybacks is over,” noted a senior credit analyst at Moody’s.
Investor Backlash Builds
Activist investors and institutional shareholders are pushing back. Several pension funds have filed shareholder proposals demanding clearer disclosure on AI capex returns. The SEC is reportedly examining whether buybacks are being used to offset dilution from stock-based compensation, which remains elevated at 3.5% of shares outstanding annually. Analysts warn that if capex does not translate into revenue growth by 2027, the buyback-driven EPS growth—which has contributed 4 percentage points to S&P 500 earnings growth this year—could reverse sharply.
Market Impact and Outlook
The Nasdaq 100’s 1.8% drop today reflects a reassessment of tech valuations. The forward P/E for the sector has fallen to 28x from 32x in June. Options markets show increased demand for puts, with the VIX for tech stocks rising to 22 from 18. With the Federal Reserve holding rates at 4.25% and quantitative tightening continuing, liquidity is tightening. Investors should watch for Q3 earnings calls, where management guidance on capex and buyback plans will be scrutinized. A pivot away from buybacks could remove a key support for stock prices, while a continued pace may strain balance sheets.
