Buyback plans aren’t enough to soothe investors after US software-sector rout

Published Tue, Mar 3, 2026 · 07:21 PM

[NEW YORK] US software companies have stepped up their stock buyback plans during a months-long rout. Investors and strategists are skeptical that it will stem the selling.

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

The sell-off accelerated in January following product announcements from AI company Anthropic that raised concerns that the rapid changes in AI make it difficult to evaluate the business prospects of software companies for the coming years.

Since Jan 12, US-listed software companies have authorised US$70.5 billion in stock repurchases, nearly four times the value of announcements for the same period a year ago, according to EPFR, a division of ISI Markets.

Salesforce announced a US$30 billion increase to its existing share repurchase program. ServiceNow authorised an additional US$5 billion in buybacks on top of the US$1.4 billion remaining in its existing share repurchase plan, including plans for a US$2 billion accelerated buyback.

Over the same time period, buyback announcements from US-traded companies in the broader technology sector rose roughly 63 per cent to US$110.1 billion from US$67.6 billion a year ago.

“When a company announces a buyback after their stock has been hit hard, I think that is an attempt to stop the decline,” said Andrew Slimmon, senior portfolio manager at Morgan Stanley Investment Management. He said he prefers companies that repurchase shares when they have strong fundamentals and price momentum.

Investors generally like buybacks because they boost quarterly earnings-per-share by reducing shares outstanding, while also signalling confidence by management in the company.

Buybacks aren’t enough

Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia, said he is unconvinced that buybacks can be a catalyst for the software sector as a whole.

“I don’t think the buybacks are enough,” said Tuz. “There needs to be demonstrated evidence that AI isn’t going to fundamentally hurt the business of a specific software company. That just takes time.”

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

Shares have fallen 15 per cent since that announcement to close at US$94.25 on Monday (Mar 2), more than 40 per cent below its June 2025 record close. Tuz said it could take “several quarters of hitting and hopefully exceeding revenue and earnings targets before the stock probably rises.”

Historically, companies that buy back their shares have tended to beat the broader market. The S&P buyback index has outperformed the S&P 500 over the last 20 years, though in the last three years the index has lagged the broad-market benchmark.

Share repurchases hit a US$1.38 trillion record in 2025, up from US$1.34 trillion in 2024, according to EPFR. Daniel Morgan, portfolio manager at Synovus Trust in Atlanta, Georgia said that buybacks would likely not boost the performance of software stocks “as investors will focus more on the long-term fundamental outlook.”

That outlook is undergoing a reappraisal. The S&P software and services index as of late February traded at a valuation of 22 times forward 12-month earnings, down sharply from 32 in October. REUTERS