About thirty years ago, the spread of the Internet changed the landscape of corporate America forever. The Internet opened up new sales channels that did not exist before and greatly expanded the reachable markets, especially abroad.
Since the advent of the Internet, numerous next-big-thing innovations have emerged that promise big dollar figures. However, the vast majority have fallen flat so far, including 3D printing, blockchain technology and the metaverse.
But after a long wait, Wall Street and investors may be able to deliver their next leap forward for corporate America: artificial intelligence (AI).
Image source: Getty Images.
What makes AI so attractive is its virtually unlimited long-term ceiling. AI-driven software and systems are becoming increasingly proficient at the tasks assigned to them, and over time have the ability to evolve and learn new jobs without the need for human intervention. This means that AI can improve productivity and increase consumer/enterprise demand in most industries around the world.
While market estimates vary widely, as you would expect with any early-stage innovation, PwC analysts believe AI is nothing short of a game changer. In Determine the pricePwC predicts a 26% ($15.7 trillion) increase in global gross domestic product by 2030, all due to the impact of artificial intelligence.
The face of the AI ​​revolution, semiconductor giant Nvidia(NASDAQ: NVDA)has shone brightest. Nvidia has added more than $3 trillion in market value since early 2023 (through the closing bell on December 23, 2024), and overwhelming demand for its AI graphics processing units (GPUs) has been the main catalyst.
Nvidia has charged up to four times more for its Hopper (H100) GPU than Advanced micro devices raises money for its Insight MI300X chips. Furthermore, the successor to the Blackwell GPU architecture offers improved power efficiency and faster computing speeds, which should keep Nvidia as the AI ​​GPU market leader for the foreseeable future.
There is no doubt that companies are aggressively investing in AI. Social media master Metaplatforms(NASDAQ: META) is spending approximately $10.5 billion to purchase 350,000 Hopper chips from Nvidia to power its AI data center ambitions. In addition, Meta is internally developing its own AI chip for use in its data centers, known as the Meta Training and Inference Accelerator.
It’s a similar story with Google parent Alphabet(NASDAQ: GOOGL)(NASDAQ: GOOG)which is one of Nvidia’s top customers by net revenue. Google Cloud is the world’s third-largest provider of cloud infrastructure services, and generative AI solutions should play a key role in supporting double-digit growth in this high-margin segment. Like Meta, Alphabet is internally developing an AI chip known as Trillium.
Even smartphone giant Apple(NASDAQ: AAPL) spends a lot on AI innovations. But while Meta and Alphabet rely on Nvidia’s superior hardware, Apple chose Google’s tensor processing units to train its Apple Intelligence model. This is the newly launched learning tool designed to help iPhone, iPad and Mac users generate information (text and images) and process data quickly.
However, the money these four prominent AI stocks spend on another “project” dwarfs their AI investments.
Image source: Getty Images.
If you look at the cash flow statements of Nvidia, Meta, Alphabet and Apple, you will see that tens of billions of dollars have been spent on research and development (R&D). But there’s another spending category that collectively consumes $1.23 trillion — Yestrillion – in combined capital for these four prominent AI stocks over the past ten years ending September 30, 2024.
The shocking investment that Nvidia, Meta, Alphabet and Apple have seemingly prioritized, in some cases even more than R&D, is (drumroll) stock buybacks!
According to calculations by S&P Global, S&P500 Companies have repurchased $7.11 trillion worth of stock over the past decade, with the top 20 companies completing the largest buybacks in the third quarter of 2024, accounting for 34% of this overall total. The cumulative amount spent on share buybacks for the above four AI giants is:
Collectively, this amounts to $1.232 trillion spent on buybacks.
NVDA Stock Repurchase Data (Quarterly) according to YCharts.
If you’re scratching your head wondering why some of Wall Street’s most historically innovative companies are pulling money from R&D and/or acquisitions and opting to buy back their own stock instead, there are three likely answers.
For starters, stock buybacks can boost earnings per share (EPS) for companies with stable or growing net income – and all four of these AI leaders meet this criterion. Dividing a company’s net profit into a decreasing number of shares outstanding should increase earnings per share and make it fundamentally more attractive to investors.
Second, a steady stream of buybacks signals to investors that a company’s board/management team still views their shares as good value. While the same can be said about insiders putting their money to work through open market purchases, buybacks act as the icing on the cake, while a company’s operational guidance is the cake.
A possible third reason why Nvidia, Meta, Alphabet and Apple have spent far more on stock buybacks than on AI innovations may be that they have more cash and operating cash flow than they know what to do with. Over the past twelve months, the operating cash flow of these giants is as follows:
These four AI leaders have the luxury of buying back their shares and taking risks because of their excessive operating cash flow and the massive cash flows already on their respective balance sheets.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Sean Williams has positions in Alphabet and Meta Platforms. The Motley Fool holds positions in and recommends Advanced Micro Devices, Alphabet, Apple, Meta Platforms, Nvidia, and S&P Global. The Motley Fool has a disclosure policy.
The four most prominent artificial intelligence (AI) stocks on Wall Street have made a shocking $1.23 trillion investment. Originally published by The Motley Fool
