LIVE MARKETS-Prioritizing capex over buybacks

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PRIORITIZING CAPEX OVER BUYBACKS

U.S. companies are prioritizing capital spending over buybacks, continuing a recent trend, according to Goldman Sachs strategists.

S&P 500 companies have reported year-over-year capital expenditure growth of 38% so far for the first quarter of 2026 versus just 1% growth for buybacks, they write in a recent note.

Cash spending forecasts show capex in 2026 growing by 33% to $2 trillion and buybacks growing just 3% to $1 trillion, they add.

"This rotation has been driven primarily by the AI hyperscalers, which are expected to spend $755 billion on capex in 2026, but the same general trend is evident in most sectors," the strategists say.

In addition, investors are rewarding companies for investing in growth over returning cash to shareholders, they say.

"The preference for growth investment spending has been apparent across industries but has been most pronounced in the AI complex," they note. "At the same time, the impact of the war on the outlooks for economic growth and Fed policy has put an end to the equity market rotation away from 'quality' that defined much of 2025."

The strategists say they also expect investors to continue to give premium valuations to companies returning cash to shareholders and to those with secure balance sheets.

"Weakness in corporate buyback growth should help sustain a scarcity premium for companies returning cash to shareholders, which have a long-term track record of outperformance. Upward pressure on the cost of debt should support a continued valuation premium for balance sheet strength," they note.

(Caroline Valetkevitch)

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