Roughly three decades ago, the proliferation of the internet changed the landscape of corporate America forever. The internet opened new sales channels that had previously not existed and vastly increased addressable markets, especially overseas.
Since the advent of the internet, numerous next-big-thing innovations have come along promising large dollar figures. However, the overwhelming majority have, until now, fallen flat, including 3D printing, blockchain technology, and the metaverse.
But after a long wait, Wall Street and investors may have their next leap forward for corporate America: artificial intelligence (AI).
Image source: Getty Images.
AI is the $15.7 trillion opportunity Wall Street and leading businesses can't ignore
What makes AI so attractive is its virtually limitless long-term ceiling. AI-driven software and systems are becoming more proficient at the tasks they've been assigned, and over time have the capacity to evolve and learn new jobs without the need for human intervention. This means AI can improve productivity and lift consumer/enterprise demand in most industries around the globe.
Though addressable market estimates vary wildly, as you'd expect with any early-stage innovation, the analysts at PwC believe AI is nothing short of a game changer. In Sizing the Prize, PwC is forecasting a 26% lift ($15.7 trillion) to global gross domestic product by 2030, all because of the impact of artificial intelligence.
NASDAQ: NVDA
Key Data Points
The face of the AI revolution, semiconductor colossus Nvidia (NVDA +1.67%), has shone the brightest. Nvidia has added more than $3 trillion in market value since the start of 2023 (through the closing bell on Dec. 23, 2024), and the overwhelming demand for its AI-graphics processing units (GPUs) was the core catalyst.
Nvidia has been charging up to four times more for its Hopper (H100) GPU than Advanced Micro Devices is netting for its Insight MI300X chips. Further, the successor Blackwell GPU architecture offers improved energy efficiency and faster computing speeds, which should lock in Nvidia as the AI-GPU market share leader for the foreseeable future.
There's no question that businesses are investing aggressively in AI. Social media maven Meta Platforms (META +1.81%) is spending in the neighborhood of $10.5 billion to purchase 350,000 Hopper chips from Nvidia to power its AI-data center ambitions. Additionally, Meta is internally developing its own AI chip for use in its data centers, known as the Meta Training and Inference Accelerator.
NASDAQ: GOOGL
Key Data Points
It's a similar story with Google parent Alphabet (GOOGL +1.71%)(GOOG +1.99%), which is one of Nvidia's top customers by net sales. Google Cloud is the world's No. 3 cloud infrastructure service provider, and generative AI solutions should play a key role in sustaining double-digit growth in this high-margin segment. Similar to Meta, Alphabet is internally developing an AI chip, known as Trillium.
Even smartphone-giant Apple (AAPL +2.65%) is spending big on AI innovations. But whereas Meta and Alphabet are reliant on Nvidia's superior hardware, Apple chose Google's tensor processing units to train its Apple Intelligence model. This is the recently launched learning tool designed to help iPhone, iPad, and Mac users generate information (text and images) and quickly process data.
However, the money being spent on another "project" by these four prominent AI stocks dwarfs their AI investments.
Image source: Getty Images.
Nvidia, Meta, Alphabet, and Apple have collectively spent $1.23 trillion on a shocking investment
If you peruse the cash-flow statements for Nvidia, Meta, Alphabet, and Apple, you'll find tens of billions of dollars devoted to research and development (R&D). But there's another spending category that's collectively consumed $1.23 trillion -- yes, trillion -- in combined capital for these four prominent AI stocks over the trailing decade, ended Sept. 30, 2024.
The shocking investment that Nvidia, Meta, Alphabet, and Apple have seemingly prioritized, even more than R&D in some instances, is (drum roll) share buybacks!
According to calculations from S&P Global, S&P 500 companies have repurchased $7.11 trillion worth of their stock over the trailing decade, with the 20 companies completing the biggest buybacks during the third quarter of 2024 accounting for 34% of this aggregate total. The cumulative amount spent on share repurchases for the aforementioned four AI juggernauts are:
- Apple: $695.312 billion
- Alphabet: $286.684 billion
- Meta Platforms: $186.187 billion
- Nvidia: $63.828 billion
Collectively, this is $1.232 trillion put to work in buybacks.
NVDA Stock Buybacks (Quarterly) data by YCharts.
If you're scratching your head and wondering why some of Wall Street's most historically innovative businesses are diverting cash away from R&D and/or acquisitions and choosing to, instead, repurchase their own stocks, there are three probable answers.
To begin with, share repurchases can boost earnings per share (EPS) for companies with steady or growing net income -- and all four of these AI leaders meet this criterion. Dividing a company's net income into a declining outstanding share count should increase EPS and make it more fundamentally attractive to investors.
Secondly, a steady stream of buybacks signals to investors that a company's board/management team still view their stock as a good value. Though the same thing can be said about insiders putting their money to work via open-market purchases, buybacks act as the icing while a company's operating guidance is the cake.
NASDAQ: AAPL
Key Data Points
A possible third reason Nvidia, Meta, Alphabet, and Apple have spent far more on share repurchases than they have on AI innovations might be because they have more cash and operating cash flow than they know what to do with. Over the trailing 12 months, the operating cash flow from these giants is as follows:
- Nvidia: $48.7 billion
- Meta Platforms: $82.7 billion
- Alphabet: $105.1 billion
- Apple: $118.3 billion
These four AI leaders have the luxury of repurchasing their shares and taking risks due to their outsized operating cash flow and the mammoth cash hoards already on their respective balance sheets.
