Why are companies spending billions buying their own stock?

AI chipmaking giant Nvidia has spent years pouring money into the chips, software, and infrastructure powering the artificial intelligence boom. Now it is preparing to spend an extraordinary sum on something else entirely: itself.

In September, the company authorized another $150 billion in share repurchases, lifting the amount remaining under its program to $235 billion, which it expects to execute through fiscal 2028. It is the largest increase to a buyback authorization on record. Nvidia had already added $50 billion to its authorization in August 2024, $60 billion a year later, and another $80 billion in May 2026. 

The sums are exceptional, but the decision is anything but unusual. S&P 500 companies repurchased a record $1.10 trillion of their shares in the 12 months through June 2026, according to a September analysis by Neuberger Berman, a global investment management firm. At that scale, how companies deploy their cash has consequences not only for investors, but also for how corporate profits return to the wider economy.

How a buyback works

A company buying its own shares may sound circular, but the mechanics are relatively straightforward. Most repurchases take place on public stock exchanges such as the Nasdaq or New York Stock Exchange, where the company purchases shares from investors willing to sell, much as another buyer might, before generally cancelling them or holding them as stock.

A March 2026 National Bureau of Economic Research (NBER) working paper by Itzhak Ben-David and Alex Chinco explains that reducing the number of shares outstanding can raise earnings per share (EPS), even when a company's total profit remains unchanged. A company earning $10 billion that reduces its share count from 10 billion to nine billion, for example, would see EPS rise from $1 to roughly $1.11. Each remaining share represents a larger portion of the same earnings.

A company earning $10 billion that reduces its share count from 10 billion to nine billion, for example, would see EPS rise from $1 to roughly $1.11. Ben-David and Chinco argue that this creates a powerful incentive for executives focused on EPS to favor repurchases when they cannot earn a sufficiently attractive return by investing the cash elsewhere. 

Buybacks also give companies considerably more flexibility than dividends. Investors often come to expect dividends as regular payments, making cuts potentially damaging, whereas repurchase programs can be expanded, slowed or suspended. An authorization therefore sets a spending ceiling rather than committing a company to buy those shares immediately. Nvidia expects its $235 billion remaining authorization to run through fiscal 2028.

Why not build something instead?

The central criticism of buybacks is straightforward: money spent purchasing shares cannot simultaneously finance a new factory, laboratory or product. 

But companies do not necessarily face a simple choice between returning cash and investing in growth. The Congressional Research Service's 2023 examination of buybacks identifies several reasons companies may return cash instead. A business may have more money than it can profitably invest, executives may believe its shares are undervalued, or the company may want to counter the increase in shares created when employees receive stock as part of their compensation. Executives may therefore judge buybacks a better use of surplus cash than projects expected to produce relatively low returns.

Nvidia illustrates why the two can coexist. Even as it spends heavily to expand its AI business, the company is generating enough cash to continue investing while also returning billions of dollars to shareholders by buying back its own stock. 

Across the AI industry, however, companies doing the heaviest spending have begun to pull back on buybacks. Neuberger Berman found that major AI investors cut repurchases by 32 percent to $85 billion in the 12 months through June 2026. Companies selling the chips, equipment and services needed for that expansion moved in the opposite direction, increasing buybacks by 12 percent to $100 billion.

In effect, some of the money invested in AI is becoming revenue for other companies, which can then use it for their own buybacks. Investment and repurchases are not always competing for the same dollar.

Record repurchases become more consequential when considered alongside a persistent weakness in business investment across many advanced economies. The OECD's 2025 Economic Outlook found that companies in several countries have directed more savings toward financial assets and shareholder payouts rather than fixed investment, with buybacks particularly important in the United States, Canada, Switzerland, and the United Kingdom.

When cash has nowhere better to go

Buybacks ultimately come down to a choice about what a company should do with cash it does not need for its immediate operations.

A repurchase can increase the ownership represented by each remaining share and lift EPS, while giving a company considerable discretion over when and how much cash it returns. The economic case becomes less convincing when a company pays too much for its own shares, borrows heavily to finance the purchases or passes up promising investments to fund them. 

Conversely, when a profitable firm has exhausted investments capable of producing worthwhile returns, returning the money can allow shareholders to direct it elsewhere.

Nvidia brings those competing arguments into unusually sharp focus. A company at the center of one of the world's largest investment booms is simultaneously preparing for the largest increase to a share-repurchase authorization ever recorded. But the apparent contradiction is precisely what makes buybacks revealing. When a company has billions left after paying its bills, what it does with the money says something about where its executives believe the next dollar can earn the most.