Companies that have spent heavily on share buybacks over the past three years have significantly underperformed the broader S&P 500 index during the artificial intelligence era, according to market analysis. Since the launch of ChatGPT in late 2022, the so-called 'buyback champions' — firms that repurchased more than 5% of their market capitalisation annually — have delivered total returns roughly 12 percentage points lower than the benchmark index, data from research firms suggest.
The divergence has widened notably in 2026, with the S&P 500 rising 8.4% year-to-date while a basket of the heaviest buyback stocks has gained just 3.1%. Among the laggards are traditional energy and consumer staples companies that used excess cash to reduce share counts rather than reinvest in artificial intelligence or cloud computing capabilities. By contrast, Nvidia has surged 142% over the same period, while Microsoft and Alphabet have also outperformed as they channel billions into data centres and AI model development.
Analysts at several City investment banks have noted that the market is now penalising firms that prioritise short-term earnings per share boosts through buybacks over long-term capital expenditure. 'In the AI era, investors are voting with their feet for companies that can demonstrate tangible investment in next-generation technology,' said a senior strategist at a London-based asset manager. 'Buybacks may boost earnings per share mechanically, but they don't build the moats that AI leadership requires.'
For UK investors and pension holders with exposure to US equities through passive tracker funds, the underperformance of buyback-heavy companies raises important questions about index composition. The S&P 500 itself has become increasingly concentrated in a handful of mega-cap technology stocks, meaning that broad market returns are now heavily dependent on the AI winners. Pension funds that hold FTSE 100 or global equity trackers may be indirectly exposed to this trend, as many passive strategies replicate the S&P 500's weighting.
The shift also has implications for corporate governance. Some UK institutional investors have long criticised excessive buybacks as a sign of short-termism, and the current market dynamics may reinforce calls for stricter disclosure on capital allocation policies. However, proponents of buybacks argue that returning cash to shareholders remains a valid strategy when a company lacks high-return investment opportunities.