Share Buybacks Are Full Steam Ahead

By Jeff Weniger and Kevin Flanagan

Week of September 2, 2025

Nvidia made a splash last week, or maybe an anti-splash, when it reported earnings and stated an intention to buy back $60 billion in stock. Some observers viewed the buyback announcement as a negative that perhaps indicates the firm doesn’t have better ideas on how to invest in the business. Others say it’s a positive. It signals the company’s management may view its own stock as a compelling value. Still others said the $60 billion price tag was no big deal; in the context of the company’s $4.4 trillion market cap, it’s a drop in the bucket.

Nvidia is not alone in its embrace of share repurchases. Birinyi Associates notes that collective share buybacks by US companies passed the trillion-dollar mark on August 20th, the quickest pace to that milestone on record. One of many explanations for the rise in prominence of share repurchase announcements: with qualified and ordinary dividends taxed at top marginal rates of 23.8% and 37.0%, respectively, many firms who find themselves flush with cash have simply focused on the share count first, dividends second.

Meantime, there is another important point with regards to the buyback trend: it has gone global. In the late 1990s, the MSCI Japan index had only a smattering of companies with a positive net buyback yield, whereas today it is a nearly universal concept, with 84% of that index’s market cap comprised of firms who are reducing share count. Similarly, MSCI Europe spent most of this century’s first few decades with less than 50% of its companies actively buying back stock. But as the Global Financial Crisis fades into memory, that figure has steadily risen; today about 78% of European companies are reducing their share count.

Domestically, if the Street has the S&P 500’s earnings picture right, there could be room for 2026 to surpass this year’s buyback record. According to Yardeni Research, the S&P’s operating earnings estimate for 2025 is $267.54, an 8.7% jump from $246.19 recorded last year. But in 2026, the Street is penciling another 13.3% earnings rise, to $303.29. Unlike in prior cycles, where FY1 earnings tended to be revised down as the clock wound, the 2026 estimate has been gently rising; it was around $300 earlier this summer. On 2024, 2025 and 2026 earnings, the S&P trades for a P/E of 26.3, 24.2 and 21.3, respectively. Few market watchers would declare these valuations to be cheap, but if we see anything in the double digits on 2026 earnings growth, there is a real possibility that next year’s buybacks could start to approach something like $1.5 trillion.

Don’t forget another wrinkle in the plot line. Recent years brought a little obstacle for management teams that wanted to buy their stock: written deep in the bowels of the 2022 Inflation Reduction Act was a 1% corporate buyback tax, a new concept that remains law today. During her campaign, Kamala Harris ran on a platform of raising that figure to 4%. However, we don’t think a plank of raising the buyback tax will be a top priority for either the Democrats or the Republicans in 2026 or 2028, on account of the political power of the “401(k) voter.” Of note: the “One Big Beautiful Bill” didn’t touch this issue, so it looks like mandates that run buyback screens may be in the clear in Washington for the foreseeable future.