3 Artificial Intelligence (AI) actions that buy their own Hand over Fist actions

Artificial intelligence (AI) stocks are some of the hottest names on Wall Street. But you knew so many of these stocks also boast significant share buyback programs?

Today, let’s examine three such stocks: Meta platform (NASDAQ: META), Microsoft (NASDAQ: MSFT)and Nvidia (NASDAQ: NVDA).

Meta’s strong free cash flow fuels its massive share buyback program.

Jake Lerch (Meta Platforms): My choice is Meta platformsthanks to its $50 billion share buyback program and fantastic free cash flow.

Why do I link stock buybacks and free cash flow? ok if stock buyback programs were airplanes, free cash flow would be their fuel. Simply puta buyback plan would crash and burn without ample free cash flow. That’s because companies use free cash flow to fund their buyback plans.

Fortunately, the Meta is full of cash profits. In the trailing 12 months, the company reported free cash flow of $49 billion, or $18.83/share. Over the last one five years, Meta has grown its free cash flow by 154%.

Meta achieved this incredible cash flow thanks to its low-asset business model. The company’s average operating margin over that five-year period that’s a remarkable 35% — surpassing other Internet giants such as Alphabet (27%) and Netflix (20%).

Moreas the digital advertising market continues to expand, Meta’s revenues — and subsequent its free cash flow — should expandalso. Analysts expect Meta’s revenue to grow to $165 billion in 2025, up about 14% from this year.

In turn, the company’s cash pile should grow steadily bigger. That’s $58 billion, though the company also has about $38 billion in debt. However, Meta has more than enough cash returns to cover its new dividend and share buyback program.

Dividend, introduced this year and paid for the first time in May, cost the company about $2.5 billion this year. The total cost should rise to about $10 billion a year. That leaves Meta plenty of cash to keep buying stocks.

Shareholders have 60 billion reasons to like this share buyback

Will Healy (Microsoft): Software giant Microsoft has long stood out for its Windows operating system and Azure cloud platform. As the second largest publicly traded company in the world, it is used to going big, and it also plans to do so with its cash reserves.

Typically, raising dividends by 10% could constitute such a move by itself. However, this adds less than $2.2 billion to its dividend costs. What is perhaps more significant is that it also approved a share buyback program valued at up to $60 billion!

While that sounds massive, investors should put this into perspective. First, it’s a multi-year plan and Microsoft could revoke the plan at any time. The company has not guaranteed that it will spend the entire amount to buy back the shares.

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Also, the number of shares in circulation amounts to just over 7.4 billion. Even if it spends the entire $60 billion allocation on share buybacks at the current stock price, that will remove just under 138 million shares from the market, less than 1.9% of the shares currently available.

Still, this likely tells investors how Microsoft will deploy much of its $75.5 billion in cash. With that money, it can easily afford share buybacks, $24 billion in annual dividend spending, and the costs of servicing its $45 billion in total debt.

Another factor that will help fund the buybacks is the roughly $74 billion Microsoft generates in free cash flow for fiscal 2024 (ended June 30). Thanks to Azure’s popularity and private OpenAI funding, Microsoft has access to some of the latest AI technologies.

As more of its customers look to use AI, Microsoft’s stock should find itself in a virtuous cycle. Not only will its free cash flow likely increase, but it will also help fund share buybacks and, by extension, price growth that will continue to attract more investors to Microsoft stock.

A stepped-up redemption program could be a taste of what’s to come.

Justin Pope (Nvidia): The arrival of AI on Wall Street last year turned Nvidia into one of the biggest companies in the world. That business went from less than $30 billion in annual revenue to about $125 billion in Nvidia’s fiscal year ending in January. Companies are investing heavily to build computing capacity to support AI applications, and the trend is set to continue, with Nvidia set to launch Blackwell, its next-generation line of AI chips.

Nvidia is very profitable, turning about half of its revenue into free cash flow. That means the company could end its fiscal year generating more than $60 billion in cash profits. Management wasted no time putting the money to work; the company announced a $50 billion share buyback program in late August with Q2 earnings. Share buybacks or repurchases reduce the amount of shares outstanding, increasing earnings per share and other financial statements per share. It is a way for a company to support its stock price while sharing its profits with investors.

Nvidia is currently more than 15% off its peak and trading at a forward P/E of 41 using analyst earnings estimates for this year. Analysts believe Nvidia could grow revenue by more than 40% annually over the next three to five years, so Nvidia looks attractively valued for its expected growth.

This is a great situation for a company to consider buying back shares. Buybacks create more shareholder value when the stock’s valuation makes sense. The lower the price, the more shares buybacks can afford and the higher the earnings (and share price). Nvidia’s AI success is getting hype, but don’t underestimate the role buybacks could play in Nvidia’s return on investment in the coming years.

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Suzanne Frey, chief executive 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 Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. Jake Lerch has positions in Alphabet and Nvidia. Justin Pope has no position in any of the stocks mentioned. Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Microsoft, Netflix and Nvidia. The Motley Fool recommends the following options: long $395 January 2026 Microsoft calls and short $405 January 2026 Microsoft calls. The Motley Fool has a disclosure policy.

3 Artificial Intelligence (AI) Stocks Buying Their Own Stocks Hand Over Fist was originally published by The Motley Fool