While Microsoft (NASDAQ: MSFT) continues to pour money into capital expenditures (capex) to build its cloud computing infrastructure for artificial intelligence (AI) applications, but the company has decided it still has money left over to return to shareholders.
The software leader raised its quarterly dividend by 10%, bringing it to $0.83. That’s good for a forward yield of about 0.75%, which probably won’t appeal to many income-oriented investors. The dividend will be paid on Dec. 12 to shareholders of record on Nov. 21.
Meanwhile, the company also announced a new $60 billion share buyback plan with no end date.
Microsoft hasn’t been a big buyer of its stock this year, so investors may be wondering what the impact of this new buyback plan might be. Let’s take a look at what history tells us.
Will this buyback plan boost Microsoft’s stock price?
This is the third time since fall 2019 that Microsoft has raised or initiated a buyback, with all three announcements coming in September. All were in the $40 billion to $60 billion range.
The company last updated its buyback plan three years ago, with a similar $60 billion buyback plan. With the stock trading around $300 at the time, it would fall and end 2022 at less than $240 per share.
To that end, the company stepped up its buyback plan by $40 billion in September 2019, with shares trading just under $140. It then bought back a lot of shares in the quarters that followed. It initially lifted the stock price, but with the onset of COVID in late March 2020, the stock price was back to about the same level as when the buybacks were initiated.
Overall, history suggests that the buyback will have little impact on Microsoft stock. While $60 billion may seem like a lot, it represents less than 2% of the outstanding shares and won’t change much.
What will be the impact on Microsoft stock?
At this point, the biggest driver of Microsoft’s stock will likely come down to how well it can seize the AI opportunity. The company has been a leader in AI since partnering with OpenAI last year and dramatically increasing its investment in it.
So far, the Azure cloud computing business has been a big AI winner, with consistent growth of around 30% this year. This is a pay-as-you-go consumption business, and Microsoft has benefited from customers using its services to create their own AI solutions.
The GitHub segment, a platform for developers to create, store and share their code, has seen its revenue soar after the introduction of an AI-powered assistant called Copilot that helps developers complete their coding. Last quarter, the company said GitHub Copilot drove 40% of the segment’s growth.
The company is also using AI across its other products, including Microsoft 365 and LinkedIn. While the company saw low double-digit growth in its Productivity segment, it aims to continue to boost revenue with the recent introduction of enhanced Copilots across its Microsoft 365 platform suite, including Excel, Word, PowerPoint, Teams and Outlook.
The company currently charges $30 per month per user for the Microsoft 365 Copilot add-in, while the standard cost for a Microsoft 365 business subscription is $12.50 per user per month and $22.50 per user per month for the premium business subscription, which includes some cybersecurity and identity management options.
Here’s a glimpse of the potential revenue opportunity Copilot presents for Microsoft. The company has added a number of compelling features that it hopes will entice customers to purchase the Copilot add-ons, including the ability to code with Python using natural language in Excel and a new collaborative feature called Copilot Pages that lets multiple users and AI work together on a shared platform.
So while history says Microsoft’s buyback will have little effect on the stock, history also says the company’s ability to innovate and adapt will have a huge positive effect in the long run. And on this front, I expect AI to continue to be a growth driver for years to come, with both Azure and Copilot.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Microsoft’s Share Buyback: History Tells Us This Is The Likely Impact was originally published by The Motley Fool
