Aggressive Buyback Strategy Lags S&P 500 as Investors Favor AI Reinvestment, Barclays Says

A strategy focused on aggressive share buybacks has faltered in the era of artificial intelligence, with companies prioritizing capital returns significantly lagging the broader market. According to analysis from Barclays, the S&P 500 Buyback Index has underperformed the benchmark S&P 500 by approximately 30% since the launch of ChatGPT in late 2022, signaling a decisive shift in investor preference toward growth-oriented investments.

Big Tech Shifts Capital Priorities

Barclays noted that the trend is particularly evident among the largest U.S. technology companies, which are redirecting capital to fund a massive, multiyear buildout of AI infrastructure. As a result, share repurchases by these major tech firms have declined by about 17% over the past year, even as buyback activity increased across the rest of the S&P 500.

The brokerage highlighted that hyperscaler capital expenditures are projected to surpass $1 trillion annually by 2028. To meet these growing funding needs, companies are increasingly relying on operating cash flow, debt issuance, and equity offerings. This pivot away from repurchases marks a significant change for a group of companies—including Apple, Microsoft, and Alphabet—that accounted for over a quarter of all S&P 500 buybacks in 2024 and 2025, according to the report.

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Investors Reward Growth Over Returns

The market's reaction underscores a clear preference for companies reinvesting in future expansion. The significant underperformance of the buyback index suggests investors are placing a higher premium on long-term AI growth potential than on the immediate earnings-per-share boost provided by repurchases.

This shift in sentiment has occurred alongside a compression in Big Tech valuations, which have fallen from around 33 times earnings two years ago to below 25 times as the market prices in a prolonged investment cycle. Barclays suggested that a slowdown in buybacks from this influential group is unlikely to weigh on the broader equity market, as the focus has moved decisively from capital returns to AI-fueled growth.