There is always criticism of buyback programs. Rightly so? The comparison with dividend stocks and the broad stock market comes to a clear conclusion.
Dusseldorf. Nvidia is a company of superlatives. The world's most valuable publicly traded company has also launched the largest share buyback program in the US economy.
Together with programs already underway, Nvidia will be allowed to spend a total of $235 billion buying back its own shares by January 2028. This means that the buybacks are almost as high as the market value of SAP, the most valuable company in the German leading index DAX.
But will Nvidia shareholders also benefit from the plans? History provides a clear answer when comparing the price development of share buybacks to dividend stocks and the broader market.
In theory, there are four reasons for share buybacks:
By buying back shares, companies signal to the market that they believe their shares are undervalued and are financially strong enough to buy back shares.
The valuation effect is further reinforced by the buybacks. They reduce the supply of shares, which increases profits per share. For many analysts, professional investors and private investors, the key figure is more important than the consolidated profit.
In addition, the share purchases themselves also influence the price development. In the years 2013 to 2023, share buybacks in the USA and Europe were responsible for around a quarter of the price gains, as the asset manager HQ Trust has calculated.
In many countries, capital gains are also taxed at a lower rate than dividend income. According to this logic, buybacks are more tax efficient than traditional profit distributions to shareholders.
A frequently cited counterargument is that the capital used for buybacks is being used incorrectly. It could instead be used for investment, research or reducing debt.
Apple shows how useful share buybacks can be
A well-known positive example of share buybacks is Apple. The iPhone retailer has been buying back its own shares for at least $60 billion for years.
The US group has already canceled almost half of its shares since 2012. Since then, the price has risen by more than 2,200 percent, 1,000 percentage points higher than the US technology index Nasdaq 100.
That speaks for the buybacks. If Apple had used the money for takeovers and used it to buy competitors, it would probably have been at the expense of profitability. Because few companies have similarly high margins.
Apple has also been one of the largest share buybacks in the past five quarters. This emerges from an evaluation by the asset manager Janus Henderson. From the second quarter of 2025 to the second quarter of 2026, Apple was always in first or second place in the evaluation. The share price rose by a good 50 percent during this period.
Shares of eight other companies that were among the largest share buybacks in each of the five quarters also rose during the period. Nvidia is also on this list and even has the greatest share price growth with an increase of 111 percent. The average is just under 53 percent.
However, Janus Henderson focused his analysis solely on the amount of share buybacks. So it doesn't relate repurchases to market capitalization, which makes the meaning clearer. Capital market strategist Sebastian Dörr from HQ Trust made exactly such a calculation - with an equally positive result for the share buyers.
To do this, Dörr analyzed the performance of the “Nasdaq Global Buyback Achievers” from 2015 to today. The index is made up of international companies that carry out share buyback programs for reasons of sound corporate financing.
To be included in the index, they must have repurchased at least five percent of the outstanding shares in the past twelve months. For German investors, an ETF from Invesco (ISIN: IE00BLSNMW37) tracks the index.
Buybacks beat dividend strategy
Dörr compared the performance with the “S&P Global Dividend Aristocrats Index”, which offers access to global stocks with high dividend yields, and the “MSCI All Country World Index”, with which investors invest in almost 2,500 companies from 23 industrialized and 24 emerging countries.
The comparison is in favor of the share buybacks. “While the global buyback achievers achieved an average annual return of 11.7 percent, the dividend strategists only achieved an increase of 7.5 percent per year.” The annual return for the MSCI ACWI was also slightly weaker.
However, investors who relied on share buybacks had to accept somewhat larger price fluctuations. At 16.8 percent, the volatility was significantly higher than with the dividend strategy (14.8 percent). Here too, the MSCI ACWI is in the middle with a volatility of 15.2 percent.
The comparison of the respective ETFs is based on the trend of the indices. Investor's "Buyback" ETF is up almost 300 percent since 2015 - slightly ahead of the MSCI ACWI and well ahead of the dividend ETF.
The clear difference in performance between share buybacks and dividends is due, on the one hand, to the different weighting of the sectors, explains Dörr: "Both strategies increasingly rely on stocks from the financial sector. Utilities and real estate stocks are also more strongly represented among the dividend aristocrats. In contrast, stocks from the industrial and cyclical consumption sectors dominate the buybacks."
What both strategies have in common is that the IT sector is heavily underweighted compared to the global stock index MSCI ACWI. The outperformance is all the more remarkable, explains Dörr.
In the case of Nvidia, investors can view the share buybacks as a good sign. In the twelve months after the announcement of an extensive share buyback program, the share price rose by an average of 24 percent, according to Ben Emons from the analysis firm FedWatch Advisors. However, they are not a guarantee that prices will rise.
Low valuation shows investor skepticism
Successful business development, which also supports the share price, is crucial for share buybacks. However, if business development falls short of expectations, share buybacks will probably not be enough to stabilize the price.
The fact that there is currently a certain level of skepticism in the market is what makes the high level of buybacks at Nvidia possible. Because measured by the price-earnings ratio based on net profits expected in the next twelve months, the chip company is cheaper than it has been in more than ten years.
This makes share buybacks attractive, but at the same time shows investors' skepticism as to whether Nvidia can continue to grow as strongly and profitably as in previous years. Whether Nvidia can dispel these doubts will ultimately be more important than the effect of the share buybacks.
