Chart: Due to AI spending, tech giants' cash payout ratio to shareholders hits a 15-year low

Patturaja Murugaboopathy

Reuters, October 30 - In the first nine months of 2026, the largest U.S. tech companies generated record cash flows, but the proportion of cash returned to shareholders hit at least a 15-year low, as surging artificial intelligence spending squeezed out room for stock buybacks.

This trend threatens the longstanding support for tech share prices. As companies reduce the number of shares repurchased, investors are increasingly depending on massive AI investments to deliver enough profit growth to justify valuations.

Reuters analysis of LSEG data and company financial statements shows that Microsoft MSFT.O, Alphabet GOOGL.O, Amazon AMZN.O, Meta META.O, and Oracle ORCL.N used only 9.3% of business-generated cash to pay dividends and repurchase shares in the first three quarters of this year, a sharp drop from 27.4% in the same period last year.

Actual operating cash flow rose 29% year-on-year to a record $542.9 billion.

However, driven by the AI boom, capital expenditure doubled to $556.9 billion. For the first time since 2011, the five companies’ capital expenditures exceeded their generated cash.

This led to a combined $14 billion deficit in free cash flow among the five companies, compared with a $143.5 billion surplus a year earlier.

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The biggest impact from this cash squeeze was on stock buybacks. These five companies' stock repurchases were slashed 83% from $81.8 billion a year earlier to $13.6 billion.

Stock buybacks take the biggest hit

Dividends—seen by investors as a commitment—increased from $33.9 billion in the same period last year to $37 billion in the first nine months of 2026, while stock buybacks have all but disappeared.

Alphabet and Meta did not repurchase any shares in 2026, compared to $66.5 billion in buybacks in the first nine months of last year. Amazon pays no dividends and has not conducted stock buybacks since 2022.

Almost all remaining stock buybacks among these five companies were by Microsoft, whose repurchases decreased from $5.7 billion in the same period last year to $4.4 billion in the September quarter.

Some companies' payments to shareholders have exceeded their operating profits after deducting capital expenditures.

With total free cash flow (FCF) for the five companies in negative territory, their total payout of $50.6 billion was actually funded by cash reserves, borrowing, or stock issuance.

Amazon's capital expenditures in the third quarter reached $75.9 billion, nearly 80% higher than its $42.4 billion in operating cash, and it raised $48.1 billion through long-term bond issuance in that quarter.

Alphabet's free cash flow was also negative, as the company raised about $12.4 billion via stock issuance and $29 billion via debt issuance.

Hidden costs

The impact of shrinking stock buybacks is more severe than the dollar amounts alone suggest. Over the years, buybacks have helped inflate earnings per share figures.

When a company buys back and cancels its own shares, profits are spread over fewer shares, so even if total profits do not grow, earnings per share rise.

ING pointed out, from the end of 2020 to 2025, Alphabet reduced its outstanding shares by 9.5% through buybacks. This alone could increase annual earnings per share (EPS) by about 2%, even without profit growth.

Without this boost, EPS would have to come from actual profit growth—a tougher challenge just as depreciation on new data centers is beginning to rise.

This strikes at the most sensitive spot for investors. Mark Schilsky, JPMorgan's technology sector specialist, said in a client note last week that investors are “far more focused on EPS than on free cash flow (FCF).”

According to MSCI, technology and communication services stocks, which account for about 43.5% of total U.S. market cap, had a shareholder yield of only 0.28% in July, compared to 1.99% for the rest of the market.

No end in sight

Amazon said it still expects about $220 billion in capital expenditures this year, and other companies have also signaled plans for further spending increases.

This leaves shareholders of the tech giants facing a situation quite different from what they originally expected: accepting lower cash returns now in the hope that AI will eventually generate enough profits to fill the gap.

Ehren Stanhope, Co-head of Investment Management at Franklin Templeton, said, “Over the past 15 years, companies have increasingly returned excess capital to shareholders through buybacks and dividends.”

“The current landscape may become increasingly characterized by more equity and debt issuance, and seeking capital from investors.”

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