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This earnings season isn’t just about AI, it’s also about share buybacks, another big theme of the cycle. Meta, BYD, Uber, and Stellantis all announced share buybacks this quarter.
So, what is a share buyback? How should investors think about share buybacks? As the name suggests, a share buyback is when a company buys back some of its issued shares from shareholders. is to reduce the amount of outstanding shares in the market. Meta recently approved a $50 billion share buyback. This means that the company has announced its intention to buy his $50 billion worth of stock in the company.
Investors can look at share buybacks like this from a variety of perspectives. On the other hand, this can also be considered a bullish signal as it shows the company’s willingness to bet on its own success. But some critics argue that stock buybacks are just a way for companies to artificially inflate stock prices. BYD’s chairman alluded to this, saying a potential $56 million share buyback was intended for both parties. “Increase investor confidence” and “Stability and improvement of corporate value”.
However, in order to propose a share buyback in the first place, a company’s balance sheet must be relatively stable, as cash is required to buy the company’s own shares. This is one reason behind investor speculation that NVIDIA may be ripe for share buybacks, given the strength of NVIDIA’s balance sheet. While there is potential for upside, some experts say the real focus should be on the dividend. investors. Like dividends, share buybacks return company profits to shareholders. Importantly, however, investors must pay capital gains tax on dividends, whereas share buybacks do not trigger this tax liability.
video transcript
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Madison Mills: This earnings season isn’t just about AI. Another big theme this cycle has been share buybacks, with Meta, BYD, Uber, and Stellantis all announcing buybacks this quarter. So, what is a share buyback? How should investors think about share buybacks? A share buyback is literally a company buying back some of its issued shares from shareholders. And it reduces the amount of outstanding shares in the market.
Meta recently approved $50 billion worth of stock buybacks. This means the company has announced its intention to buy $50 billion worth of its own stock. Now, investors can look at stock buybacks like this from another perspective. On the other hand, this can also be considered a bullish signal as it shows the company’s willingness to bet on its own success. But critics say stock buybacks are just a way for companies to artificially inflate their stock prices.
BYD’s chairman noted this, saying that the potential $56 billion share buyback is aimed at boosting investor confidence and stabilizing and increasing corporate value. However, in order to propose share buybacks in the first place, a company must have a fairly stable balance sheet. They need cash to buy their stocks. This is one reason behind investor speculation that NVIDIA may be ripe for a share buyback, given the strength of NVIDIA’s balance sheet.
Some experts argue that while share buybacks can boost stock prices, the real focus should be on dividends, which provide a measurable increase in the underlying value of your holdings. Similar to dividends, stock buybacks return company profits to shareholders. But what’s really important here is that investors have to pay capital gains tax on dividends. Stock buybacks do not result in any tax liability.
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