Analysis – Buyback plans are not enough to comfort investors later on through the software-sector

By Sinead Caro and Saqib Iqbal Ahmed

March 3 (Reuters) – U.S. software companies have accelerated their stock buyback plans during a month-long rally. Investors and strategists are skeptical that this will prevent sales.

Investors have been dumping software stocks since the fall, with the S&P 500 software index down 28% since late October, amid concerns that advances in artificial intelligence (AI) will dramatically disrupt the competitive landscape for the richly valued sector.

Sales accelerated in January after product announcements from AI firm Anthropic raised concerns that rapid changes in AI are making it difficult to assess software companies’ business prospects for years to come.

Since Jan. 12, U.S.-listed software companies have authorized $70.5 billion in stock repurchases, nearly four times the value announced for the same period last year, 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 purchases on top of the $1.4 billion remaining in its existing share repurchase plan, including plans for $2 billion in accelerated buybacks.

During the same period, announcements of purchases from U.S. companies in the technology-wide segment increased nearly 63%, from $67.6 billion to $110.1 billion last year.

“When a company announces a buyback after their stock has taken a hit, I think it’s an attempt to stop the decline,” said Andrew Solomon, senior portfolio manager at Morgan Stanley Investment Management. He said he prefers companies to buy back shares when they have strong fundamentals and price movement.

Investors generally like buybacks because they increase monthly earnings per share by reducing outstanding shares, while also signaling confidence from management in the company.

Purchases are not enough

Peter Toews, president of Chase Investment Advisors in Charlottesville, Virginia, said he’s not convinced the buyout could be a catalyst for the software sector as a whole.

“I don’t think the withdrawal is enough,” Toews said. “There needs to be evidence that AI doesn’t fundamentally hurt a particular software company’s business. It just takes time.”

Tuz said his company added to its holdings in human resources software and services company Paychex after it backed up its annual financial guidance in December and then announced a $1 billion buyback program on Jan. 16, replacing a 2024 plan that called for $400 million in repurchases.

Shares have fallen nearly 15% to $94.25 on Monday since the announcement, more than 40% off their June 2025 record close. Toews said it could “take a couple of quarters of shocks and hopefully exceed revenue and earnings targets before the stock is likely to rise.”

Historically, companies that buy back their shares tend to beat the broader market. The S&P 500 has outperformed the S&P 500 over the past 20 years, although the index has lagged the broader market benchmark over the past three years. Share repurchases hit a record $1.38 trillion in 2025, up from $1.34 trillion in 2024, according to EPFR.

Daniel Morgan, a portfolio manager at Synvos Trust in Atlanta, Georgia, said the buyout likely won’t boost the software stock’s performance “because investors will be more focused on the long-term fundamental outlook.”

This view is under re-evaluation. The S&P Software and Services Index traded at 22 times trailing 12-month earnings in late February, down sharply from 32 in October.

(Reporting by Sinead Carew and Saqib Iqbal Ahmed; Editing by Colin Barr)