The five US tech companies with the largest cash piles took advantage of President Trump’s tax reforms to spend more than $115bn in the first three quarters on buying back their own stock.
The share buybacks so far this year by Apple, Alphabet, Cisco, Microsoft and Oracle, after the tax change came into force at the end of 2017, are nearly double what the companies spent in the whole of last year, making investors some of the biggest beneficiaries of a plan that was billed as a boost to US jobs. They also increased their capital investment by 42 per cent compared with the same period last year, to $42.6bn, according to FT calculations.
Tech companies have also led a parallel trend, identified in a report released on Tuesday by Moody’s Investors Service, for US companies to channel a large part of their tax windfalls into paying down debt. The new data add to the debate about the extent to which the tax reforms have boosted investors, rather than stimulating investment and benefiting American workers.
The National Association for Business Economics reported last month that the changes to the tax code had “not broadly impacted hiring and investment plans”.
Tech companies had been sitting on some of the largest cash piles, almost all of it stranded offshore where it escaped an immediate tax.
Last year’s Tax Cuts and Jobs Act brought these reserves into the tax net but at a reduced rate — in turn freeing the companies to use the money rather than leave it to continue to pile up.
“Most companies are using cash to buy back stock and make acquisitions, rather than invest in new facilities,” said Walter Price, a tech investment manager at Allianz.
“I think this is good for shareholders and management.” Tech companies were also paying down debt they took on in previous years to buy back shares, he added. Apple, with the largest offshore cash and investment holdings, generated headlines soon after the passage of the tax bill when it said its “direct contribution” to the US economy would be $350bn over the next five years.
Since then, it has lifted its capital spending to $14.5bn, an increase of 14 per cent from the year before. But its spending on buybacks has soared to $62.6bn in the first nine months of the year, nearly three times as much as the same period the year before.
Investors and analysts said that repatriated cash was also contributing to renewed investment. But planning new facilities takes longer than executing a buyback, and will take longer to show up in capital spending figures, said Mr Price.