U.S. software companies have dramatically increased stock buyback authorizations in the midst of a months-long rout, yet investors and strategists are skeptical that repurchases will be sufficient to staunch the selling pressure.
The S&P 500 software index has fallen 28% since late October, as market participants reassess richly valued software names amid worries that developments in artificial intelligence (AI) could substantially alter competitive dynamics. The pace of the selloff intensified in January after product announcements from AI company Anthropic, which heightened concerns that rapid AI advances make forecasting the business prospects of software firms over coming years more difficult.
From January 12 onward, U.S.-listed software companies authorized $70.5 billion in stock repurchases - nearly four times the value announced during the same period a year earlier, according to EPFR, a division of ISI Markets. Major software firms were among those ramping up buybacks. Salesforce announced a $30 billion increase to its existing repurchase program. ServiceNow approved an additional $5 billion in buybacks on top of $1.4 billion remaining in its prior program, and included plans for a $2 billion accelerated buyback.
Across the broader technology sector, buyback announcements by U.S.-traded companies over the same interval rose about 63%, to $110.1 billion from $67.6 billion a year earlier.
Why buybacks may not be enough
Investors generally welcome buybacks because reducing shares outstanding tends to lift quarterly earnings-per-share, and repurchases can be read as a signal that management is confident about the company’s prospects. Still, market professionals caution that buybacks announced after a sharp stock decline can be interpreted as efforts to halt further price erosion rather than as evidence of robust fundamentals.
"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 added that he prefers firms that repurchase shares when they have strong fundamentals and positive price momentum.
Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia, said buybacks alone are unlikely to serve as a sector-wide catalyst. "I don’t think the buybacks are enough," Tuz said. He emphasized the need for demonstrated evidence that AI will not fundamentally damage a specific software company’s business - and that such evidence will take time to materialize.
Paychex example
Tuz pointed to a specific example: his firm increased its holdings of human-resources software and services company Paychex after the company validated its annual financial guidance in December and then announced a $1 billion buyback program on January 16, replacing a 2024 plan that called for $400 million in repurchases. Despite that move, Paychex shares fell 15% since the announcement to close at $94.25 on Monday, and trade more than 40% below their 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." His comment reflects investor desire for sustained delivery on financial targets rather than one-off capital-return actions.
Historical context and market metrics
Historically, companies that repurchase their own shares have tended to outperform the broader market; the S&P buyback index has outperformed the S&P 500 over the last 20 years. That said, the buyback-focused index has lagged the broad-market benchmark over the past three years.
At a headline level, share repurchases reached a record $1.38 trillion in 2025, up from $1.34 trillion in 2024, according to EPFR.
Still, some portfolio managers say buybacks are unlikely to meaningfully boost software stocks in the near term, because investors are focused on the long-term fundamental outlook. "Buybacks would likely not boost the performance of software stocks as investors will focus more on the long-term fundamental outlook," said Daniel Morgan, portfolio manager at Synovus Trust in Atlanta, Georgia.
Valuation reappraisal
Market valuations show how that reappraisal is playing out. As of late February, the S&P software and services index traded at 22 times forward 12-month earnings, a significant drop from 32 times in October. This compression reflects investor caution as they weigh uncertain implications of AI-driven shifts for future revenue and profitability across the sector.
In short, while corporate buyback programs have been scaled up in an effort to support share prices and return capital to shareholders, market participants indicate that evidence of sustained revenue and earnings performance and clarity around AI’s impact will be necessary before investor sentiment toward software names meaningfully improves.