Big tech share buybacks plunge 83% as AI spending hits cash flows

ETMarkets.com

Microsoft, Alphabet, Amazon, Meta and Oracle returned just 9.3% of the cash generated by their businesses through dividends and share buybacks in the first three quarters of 2026, down from 27.4% a year earlier, according to a Reuters analysis of LSEG data and company financial reports.

The five companies generated a record $542.9 billion in operating cash flow during the period, an increase of 29% from a year earlier. However, capital expenditure doubled to $556.9 billion as companies accelerated investments in AI infrastructure, exceeding their combined operating cash flow for the first time in data dating back to 2011.

The spending surge pushed their combined free cash flow into a deficit of $14 billion, compared with a surplus of $143.5 billion in the same period last year.

Share buybacks bore the brunt of the cash squeeze, with repurchases plunging 83% to $13.6 billion from $81.8 billion a year earlier. Dividend payments, meanwhile, increased to $37 billion from $33.9 billion, reflecting companies' reluctance to cut payouts that investors typically view as longer-term commitments.

AI Investments Squeeze Shareholder Returns

Alphabet and Meta did not repurchase any shares during the first nine months of 2026, compared with $66.5 billion in buybacks during the corresponding period last year. Amazon, which does not pay a dividend, has also not repurchased shares since 2022.

Microsoft accounted for nearly all the remaining buybacks among the five companies, although its repurchases declined to $4.4 billion in the September quarter from $5.7 billion a year earlier.

The cash-flow pressure has also prompted some companies to rely on external financing to support their investment plans and shareholder distributions.

With combined free cash flow turning negative, the companies' $50.6 billion in shareholder payouts were effectively financed through a combination of existing cash reserves, borrowing and share issuance, Reuters reported.

Amazon's capital expenditure reached $75.9 billion in the third quarter, nearly 80% higher than the $42.4 billion generated by its operations. The company also raised $48.1 billion in long-term debt during the quarter.

Alphabet similarly reported negative free cash flow and raised approximately $12.4 billion through share sales and $29 billion through debt issuance.

Declining Buybacks Could Weigh on Earnings Growth

The slowdown in share repurchases could have implications beyond the immediate reduction in shareholder returns. Buybacks have historically supported earnings per share by reducing the number of outstanding shares, allowing companies to report higher per-share earnings even without equivalent growth in overall profits.

Alphabet reduced its share count by 9.5% between the end of 2020 and 2025 through buybacks, according to ING. This provided an estimated annual boost of around 2% to earnings per share, even without an increase in underlying profits.

With fewer buybacks, technology companies will increasingly need to generate actual profit growth to sustain earnings-per-share expansion. The challenge comes as depreciation expenses associated with newly built data centres are expected to increase.

The shift could be particularly significant for the broader US equity market, given the weight of technology and communication services companies. These sectors account for approximately 43.5% of total US market value.

Their shareholder yield stood at just 0.28% in July, compared with 1.99% for the rest of the market, according to MSCI data.

Big Tech AI Spending Set to Remain Elevated

The pressure on shareholder returns may persist as major technology companies continue to expand their AI infrastructure investments.

Amazon has indicated that it expects capital expenditure of around $220 billion this year, while other major technology companies have also signalled further increases in spending.

The shift represents a change in the relationship between Big Tech companies and their investors. Shareholders are receiving less cash through dividends and buybacks as companies redirect resources towards data centres, computing infrastructure and other AI-related investments.

According to Franklin Templeton's investment management leadership, the traditional model of returning excess capital through dividends and buybacks could increasingly give way to companies seeking additional capital through equity and debt issuance.

For investors, the central question is whether substantial investments in artificial intelligence will eventually generate enough earnings growth to offset reduced shareholder payouts and the technology sector's growing financing needs.