Deep Dive: How Stock Buybacks Affect Share Price and Earnings — Why Big Tech Spends Billions Repurchasing Its Own Shares

A stock buyback — also called a share repurchase — occurs when a company uses its cash to buy its own shares on the open market. Once repurchased, these shares are either retired (permanently cancelled) or held as treasury stock. Either way, they're removed from circulation, reducing the total number of shares outstanding.

The immediate effect is mathematical: with fewer shares outstanding, each remaining share represents a larger ownership stake in the company. If a company earns $100 billion in net income and has 10 billion shares outstanding, earnings per share (EPS) is $10. If the company buys back 1 billion shares, the same $100 billion in earnings is now divided by 9 billion shares, producing an EPS of $11.11 — an 11% increase with zero change in actual profitability.

Companies fund buybacks from three sources: operating cash flow (the most sustainable), cash reserves on the balance sheet, or debt issuance. The healthiest buyback programs are funded entirely from free cash flow — cash left over after capital expenditures. When companies borrow to fund buybacks, it can be a warning sign that management is prioritizing short-term EPS growth over long-term financial health.

Buybacks differ from dividends in important ways. Dividends provide direct cash payments to all shareholders and create a recurring obligation that's difficult to cut without signaling trouble. Buybacks are more flexible — companies can scale them up or down without market penalties — and they're generally more tax-efficient for shareholders since they don't trigger immediate taxable income.

The scale of Big Tech buybacks is staggering. From fiscal years 2022 through 2025, Apple, Alphabet, Meta, and Microsoft spent a combined $775.9 billion repurchasing their own shares. To put that in perspective, it exceeds the entire annual GDP of Switzerland.

Apple is the undisputed buyback champion. The company has spent $352.6 billion on share repurchases over the past four fiscal years alone — $89.4 billion in FY2022, $77.6 billion in FY2023, $94.9 billion in FY2024, and $90.7 billion in FY2025. Apple consistently returns more than 80% of its free cash flow to shareholders through buybacks and dividends combined, with buybacks representing the lion's share. As of its most recent quarter, Apple's diluted share count stood at approximately 14.8 billion, down from roughly 16.3 billion four years ago — a reduction of more than 9%.

Alphabet has been the second-largest repurchaser, spending $228.7 billion over the period. Notably, Alphabet cut its buyback spending significantly in FY2025 to $45.7 billion (from $62.2 billion the prior year), redirecting capital toward a massive $91.4 billion capital expenditure program focused on AI infrastructure — data centers, custom chips, and cloud computing capacity.

Meta Platforms spent $104.1 billion on buybacks across the four-year period, though its pattern has been volatile. Repurchases dropped to $19.8 billion in FY2023 during the company's "Year of Efficiency" restructuring, then rebounded to $30.1 billion in FY2024 before pulling back to $26.2 billion in FY2025 as AI infrastructure spending surged to $69.7 billion in capital expenditures.

Microsoft, while the smallest of the four in buyback volume at $90.6 billion, has been the most consistent, maintaining annual repurchases in the $17-33 billion range. Microsoft's buyback program is more modest relative to its cash flow because the company allocates significant capital to dividends ($24.1 billion in FY2025) and acquisitions.

The EPS-enhancing effect of buybacks is best illustrated with actual corporate data. Consider Apple: in fiscal year 2025, the company generated $112 billion in net income. With approximately 15.0 billion diluted shares outstanding (weighted average), that produced diluted EPS of roughly $7.92 across the year. But without the cumulative effect of years of buybacks, Apple's share count would be substantially higher, and that same net income would be spread across more shares — resulting in materially lower EPS.

Apple's diluted share count has fallen from approximately 16.3 billion in FY2022 to 14.8 billion in the most recent quarter. That 9% reduction means each remaining share captures 9% more of Apple's earnings than it would have otherwise. At the current share price of $264.58 and trailing EPS of $7.91, Apple trades at a P/E ratio of 33.5x. If those repurchased shares still existed, EPS would be roughly $7.19, and at the same price, the P/E would stretch to 36.8x — making the stock look meaningfully more expensive.

Meta offers an even more dramatic case study. The company's diluted share count dropped from approximately 2.72 billion in early 2022 to 2.52 billion today — a 7.4% reduction. Combined with a near-tripling of net income (from $23.2 billion in FY2022 to $60.5 billion in FY2025), the per-share impact has been enormous. Meta's trailing EPS stands at $23.47, whereas with the pre-buyback share count, it would be approximately $22.24. The buyback effect amplifies the underlying business improvement.

This is the key insight for investors: buybacks create a compounding effect when combined with revenue and earnings growth. A company growing earnings 15% annually that also reduces its share count by 3% annually effectively delivers 18% EPS growth. Over a decade, that difference compounds significantly.

Not all buybacks are created equal. The critical factor is the price at which a company repurchases its shares relative to their intrinsic value. When a company buys back undervalued stock, it transfers wealth from selling shareholders to remaining shareholders — genuine value creation. When it buys back overvalued stock, it destroys value for continuing shareholders while benefiting those who sold.

Warren Buffett has articulated this principle clearly: buybacks are only sensible when shares trade below a conservative estimate of intrinsic value. By this standard, Apple's buyback program has been among the most successful in corporate history. The company repurchased aggressively during periods when its P/E ratio was in the low teens, locking in enormous value for long-term holders. Today, with Apple trading at 33.5x earnings, the value proposition of continued buybacks is less clear-cut.

Critics of buybacks raise several legitimate concerns. First, buybacks can mask stagnant or declining business performance. If a company's revenue is flat but EPS is rising due to share count reduction, headline metrics can paint a misleadingly positive picture. Second, when executives hold stock options or performance-based compensation tied to EPS targets, they have a personal financial incentive to prioritize buybacks over potentially higher-return investments in R&D, acquisitions, or workforce development.

The AI infrastructure spending wave has brought this tension into sharp focus. Both Alphabet and Meta significantly curtailed buybacks in FY2025 to fund massive AI capital expenditure programs — Alphabet spent $91.4 billion and Meta spent $69.7 billion on property, plant, and equipment. Whether these investments generate better long-term returns than returning that capital to shareholders through buybacks remains one of the most consequential questions in technology investing today.

A third concern is the use of debt to fund buybacks. While none of the four companies profiled here rely primarily on debt-funded repurchases, the practice is common among less cash-rich companies and can create dangerous leverage, particularly during economic downturns when the borrowed-against earnings evaporate but the debt obligations remain.

For investors analyzing buyback programs, five metrics matter most. First, check the funding source: is the company repurchasing shares from free cash flow, or taking on debt? Apple spent $90.7 billion on buybacks in FY2025 against $98.8 billion in free cash flow — a sustainable 91.8% payout. Microsoft spent $18.4 billion against $71.6 billion in free cash flow — a conservative 25.7%. Both are healthy.

Second, track the actual share count over time. Some companies announce large buyback authorizations that generate positive headlines but execute slowly or not at all. Others use buybacks merely to offset dilution from stock-based compensation, resulting in flat or even rising share counts despite billions in reported repurchases. Among tech companies, stock-based compensation is significant: Apple recorded $12.9 billion in SBC in FY2025, Alphabet $25.0 billion, Meta $20.4 billion, and Microsoft $12.0 billion. The net share reduction after accounting for SBC dilution is always smaller than the gross buyback figure suggests.

Third, compare the buyback yield — annual repurchase spending divided by market capitalization — against the dividend yield to understand the total shareholder return picture. Apple's buyback yield is approximately 2.3% ($90.7B / $3.89T market cap) versus a dividend yield of around 0.4%, making buybacks roughly six times more impactful than dividends for shareholder returns.

Fourth, consider the valuation at which buybacks are occurring. Buying back shares at 15x earnings is very different from buying back at 35x earnings. The lower the valuation, the more accretive each dollar of buyback spending becomes. At Apple's current 33.5x P/E, each dollar buys roughly 3% less in earnings power than it would at a 25x P/E.

Finally, evaluate the opportunity cost. Every dollar spent on buybacks is a dollar not invested in growth, R&D, or strategic acquisitions. For mature businesses with limited reinvestment opportunities, buybacks are often the highest-return use of capital. For companies in rapidly evolving industries — like AI — the calculus may favor investment over returns. Alphabet's decision to cut buybacks by 27% year-over-year while nearly doubling its capital expenditure budget reflects exactly this kind of strategic re-prioritization.