4 of Wall Street’s Most Prominent Artificial Intelligence (AI) Stocks Have Made a Shocking $1.23 Trillion Investment

About three decades ago, the spread of the Internet changed the landscape of corporate America forever. The Internet opened up new sales channels that had not previously existed and significantly increased addressable markets, especially overseas.

Since the advent of the Internet, there have been several next-big innovations promising big dollar figures. However, the overwhelming majority have so far fallen flat on their faces, including 3D printing, blockchain technology and the metaverse.

But after a long wait, Wall Street and investors may get their next leap forward for corporate America: artificial intelligence (AI).

AI is the $15.7 trillion opportunity Wall Street and leading companies cannot ignore

What makes AI so attractive is its virtually unlimited long-term ceiling. AI-powered software and systems become more adept at the tasks they have been assigned, and over time have the capacity to evolve and learn new jobs without the need for human intervention. This means that AI can improve productivity and lift consumer/business demand in most industries around the world.

Although addressable market estimates vary wildly, as you would expect with any early-stage innovation, the analysts at PwC believe AI is nothing short of a game changer. IN Size of the prizePwC predicts a 26% increase ($15.7 trillion) to global gross domestic product by 2030, all due to the impact of artificial intelligence.

The face of the AI ​​revolution, the semiconductor colossus Nvidia (NVDA -0.22%)has shone the brightest. Nvidia has added more than $3 trillion in market capitalization since the start of 2023 (through the closing bell on December 23, 2024), with overwhelming demand for its AI graphics processing units (GPUs) being the core catalyst.

Nvidia has charged up to four times more for its Hopper (H100) GPU than Advanced micro-devices is netting for its Insight MI300X chips. Furthermore, the successor Blackwell GPU architecture offers improved energy efficiency and faster computing speeds, which should lock Nvidia as the AI ​​GPU market share leader for the foreseeable future.

There is no doubt that companies are investing aggressively in artificial intelligence. The belly of social media Meta platforms (META -0.71%) is spending close to $10.5 billion to buy 350,000 Hopper chips from Nvidia to power its AI data center ambitions. In addition, Meta is internally developing its own AI chip for use in its data centers, known as the Meta Training and Inference Accelerator.

It’s a similar story with Google’s parents Alphabet (GOOGL -0.09%) (GOOG -0.08%)which is one of Nvidia’s largest customers by net revenue. Google Cloud is the world’s no. 3 provider of cloud infrastructure services, and generative AI solutions should play a key role in sustaining double-digit growth in this high-margin segment. Similar to Meta, Alphabet is developing an AI chip in-house, known as Trillium.

Even smartphone giant Apple (AAPL 0.16%) spending big on AI innovations. But while Meta and Alphabet rely on Nvidia’s superior hardware, Apple chose Google’s tensor processing units to train its Apple Intelligence model. This is the newly launched learning tool designed to help iPhone, iPad and Mac users generate information (text and images) and quickly process data.

But the money spent on another “project” by these four prominent AI stocks dwarfs their AI investments.

Nvidia, Meta, Alphabet and Apple have spent a combined $1.23 trillion in a shocking investment

If you read the cash flow statements of Nvidia, Meta, Alphabet, and Apple, you will find tens of billions of dollars devoted to research and development (R&D). But there is another spending category that has consumed a combined $1.23 trillion — yestrillion — in combined cap for these four prominent AI stocks over the past decade ending September 30, 2024.

The shocking investment that Nvidia, Meta, Alphabet and Apple seem to have prioritized, even more than R&D in some cases, is (drum roll) share buybacks!

According to calculations from S&P Global, S&P 500 companies have repurchased $7.11 trillion of their stock over the past decade, with the 20 companies completing the largest buybacks in the third quarter of 2024 accounting for 34% of this combined total. The cumulative amount spent on share buybacks for the aforementioned four AI juggernauts is:

• Apple: $695.312 billion
• Alphabet: 286.684 billion dollars
• Meta platforms: 186.187 billion dollars
• Nvidia: $63.828 billion

In total, this is $1.232 trillion put to work in buybacks.

NVDA share buyback (quarterly) data of YCharts.

If you’re scratching your head and wondering why some of Wall Street’s most historically innovative companies are diverting money away from R&D and/or acquisitions and choosing instead to buy back their own stock, there are three likely answers.

For starters, share buybacks can increase earnings per share. Dividing a company’s net income into a decreasing number of shares outstanding should increase EPS and make it more fundamentally attractive to investors.

Second, a steady stream of buybacks signals to investors that a company’s board/management still sees their stock as a good value. While the same can be said for insiders who put their money to work via open market purchases, buybacks serve as the icing on the cake, while a company’s operating manual is the icing on the cake.

A possible third reason why Nvidia, Meta, Alphabet and Apple have spent far more on share buybacks than they have on AI innovations may be because they have more money and operating cash flow than they know what to do with. Over the past 12 months, the operating cash flow of 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 executives have the luxury of buying back their stock and taking risks due to their excessive operating cash flows and the huge cash holdings already on their respective balance sheets.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister of Meta Platform CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Sean Williams holds positions at Alphabet and Meta Platforms. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Apple, Meta Platforms, Nvidia and S&P Global. The Motley Fool has a non-disclosure policy.