Corporate share repurchases remain one of the defining features of U.S. equity markets, but their effectiveness is clearly waning even as companies commit record sums. In the first half of 2025, S&P 500 firms bought back almost 550 billion dollars’ worth of stock, the highest on record. Goldman Sachs expects the total to rise by another 12 percent in 2026 to about 1.2 trillion dollars, while JPMorgan projects an additional 600 billion dollars of repurchases in the coming years. This would return buybacks to 3 to 4 percent of market capitalization, in line with pre-pandemic levels, compared with the current 2.6 percent.
Despite these impressive figures, the impact of buybacks on the market has diminished. The buyback yield has dropped to around 2 percent, the lowest in two decades outside of recessions. A decade ago, roughly one third of S&P 500 companies reduced their share count by at least 3 percent annually; today only about one fifth achieve that. For investors, this means the once-reliable boost to earnings per share has weakened. In the past, buybacks added roughly 1.2 percentage points per year to EPS growth, but that contribution has shrunk, leaving stock prices with less support during market downturns.
The reasons for this weakening are structural. Higher interest rates have made debt-financed buybacks more expensive, and in recent years many repurchases have been funded not from profits but from borrowing. At the same time, companies are redirecting cash flows toward capital expenditures, above all to meet the surging demand for AI and data centers. In the first quarter of 2025, data center spending rose 53 percent year-on-year to 134 billion dollars, driven largely by hyperscalers. Analysts at McKinsey expect global investment in data infrastructure to reach 6.7 trillion dollars by 2030, with more than 40 percent of that in the United States. Eight of the largest hyperscalers alone are on track to spend about 371 billion dollars on AI-related capacity in 2025, a 44 percent annual increase. Rising utility costs and infrastructure outlays are further straining budgets and competing directly with buyback programs.
History shows that companies have consistently allocated around 43 to 44 percent of their earnings to buybacks over the past decade, with deviations only during extraordinary events such as the 2018 U.S. tax reform or the 2020 pandemic recession. In the first half of 2025 that ratio stood at 44 percent. Yet the effectiveness of each dollar spent on buybacks is clearly lower today than in the past.
Nevertheless, buybacks still matter for individual stocks. Portfolios of companies with the highest buyback yields in the S&P 500 have outperformed the broader index by nearly six percentage points so far this year. Firms that have executed repurchases consistently and efficiently over many years continue to deliver superior returns, and investors still treat buybacks as a signal of management confidence and capital discipline.
Looking ahead, the future of buybacks will depend heavily on earnings growth and market valuations. If profits expand, repurchases could remain at elevated levels, with totals approaching or even surpassing 1.5 trillion dollars in 2025 as JPMorgan suggests. But if interest rates remain high, or if the rush into AI and data infrastructure absorbs even more capital, buybacks will face limits. A sudden drop in valuations or a collapse of the AI investment cycle could reverse the trend, potentially cutting equity prices by 30 percent or more.
For investors, the message is clear. Buybacks are no longer an automatic engine of EPS growth or a guaranteed floor under share prices. They must be evaluated in the context of broader corporate strategy, balance sheet health, and the growing capital demands of technological transformation. In 2025 and beyond, the real story is not just how much capital companies return, but how wisely they balance shareholder payouts with the investments that will define their competitiveness in the age of artificial intelligence.
