After a large, debt-funded acquisition, deleveraging should be the top priority over share buybacks. Choosing buybacks sends a mixed signal, disappoints investors expecting a return to the growth playbook, and leaves the company too financially constrained to pursue future strategic M&A opportunities.

For years, cash-rich tech giants buoyed markets by returning capital to investors via share buybacks. The current wave of capital-intensive IPOs and bond issuances reverses this trend. Tech firms are now absorbing investor cash instead of returning it, potentially draining market liquidity and creating downward pressure on stock prices.

While equity markets remain bullish on mega-cap tech, the bond market is flashing a warning. The credit spreads for hyperscalers are widening as they take on massive debt for AI capex. This signals that debt investors, who are often more risk-aware, see growing financial strain that equity investors are ignoring.

Unlike other sectors, share buybacks are rare for REITs because management prioritizes maintaining low leverage to please debt rating agencies. When a conservative REIT does initiate a buyback, it's a strong signal that management believes the stock is significantly undervalued, as they are willing to risk a negative watch from those agencies.

Apple hitting its goal of balancing cash and debt isn't a signal to slow shareholder returns. Instead, it provides the company with more strategic options for managing its capital structure, like refinancing debt, while continuing aggressive stock buybacks.

Companies termed "share cannibals" aggressively repurchase their own shares, especially when undervalued. This capital allocation strategy is often superior to dividends because it transfers value from sellers to long-term shareholders and acts as a high-return, low-risk investment in the company's own business.

In a potential recession, highly levered companies like Global Payments and Shift4 (3.5x net debt/EBITDA) make a mistake prioritizing buybacks. Fiserv's new strategy of pausing buybacks to deleverage is more responsible, as de-risking the balance sheet can increase equity value.

Tech giants are no longer funding AI capital expenditures solely with their massive free cash flow. They are increasingly turning to debt issuance, which fundamentally alters their risk profile. This introduces default risk and requires a repricing of their credit spreads and equity valuations.

Insiders and CEOs are generally good at timing capital allocation, issuing shares when prices are high and buying back when low. The current lack of equity issuance from high-flying tech companies suggests their leadership doesn't view their stock as overvalued, despite having clear reasons to raise capital.