By Sinéad Carew and Saqib Iqbal Ahmed
March 3 (Reuters) – U.S. software companies have stepped up their stock buyback plans during a months-long rout. Investors and strategists are skeptical that it will stem the selling.
Investors have been dumping software stocks since the fall, with the S&P 500 software index down 28% since late October, on worries that developments in artificial intelligence (AI) will dramatically disrupt the competitive landscape for the richly valued sector.
The selloff accelerated in January following product announcements from AI company Anthropic that raised concerns that the rapid changes in AI make it difficult to evaluate the business prospects of software companies for the coming years.
Since January 12, U.S.-listed software companies have authorized $70.5 billion in stock repurchases, nearly four times the value of announcements for the same period a year ago, according to EPFR, a division of ISI Markets. Salesforce announced a $30 billion increase to its existing share repurchase program. ServiceNow authorized an additional $5 billion in buybacks on top of the $1.4 billion remaining in its existing share repurchase plan, including plans for a $2 billion accelerated buyback.
Over the same time period, buyback announcements from U.S.-traded companies in the broader technology sector rose roughly 63% to $110.1 billion from $67.6 billion a year ago.
“When a company announces a buyback after their stock has been hit hard, I think that is an attempt to stop the decline,” said Andrew Slimmon, senior portfolio manager at Morgan Stanley Investment Management. He said he prefers companies that repurchase shares when they have strong fundamentals and price momentum.
Investors generally like buybacks because they boost quarterly earnings-per-share by reducing shares outstanding, while also signaling confidence by management in the company.
BUYBACKS AREN’T ENOUGH
Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia, said he is unconvinced that buybacks can be a catalyst for the software sector as a whole.
“I don’t think the buybacks are enough,” said Tuz. “There needs to be demonstrated evidence that AI isn’t going to fundamentally hurt the business of a specific software company. That just takes time.”
Tuz said his firm added to its holdings of human resources software and services company Paychex after it backed its annual financial guidance in December and then announced a $1 billion buyback program on January 16, replacing a 2024 plan that called for $400 million in repurchases.
