Goldman Sachs expects U.S. buybacks to top $1 trillion in 2025

(Reuters) -Goldman Sachs expects U.S. share buybacks to exceed $1 trillion for the first time in 2025, driven by strong earnings growth from technology companies and looser financial conditions as the Federal Reserve looks to cut interest rates.

The Wall Street bank, in a note dated March 6, said it expects 16% growth in share repurchases from S&P 500 companies to $1.08 trillion in 2025, following a 13% rise to $925 billion in 2024.

"Earnings growth is the most significant driver of share repurchases at the index level," Goldman U.S. equity strategists led by Cormac Conners and David Kostin, said expecting megacap companies to pull much of the weight.

Companies typically buy back their shares when they are feeling confident about the future and view their stock prices as undervalued.

With a 7% gain year-to-date, the benchmark S&P 500 is trading near record levels, driven by frenzy around artificial intelligence and bets of falling U.S. interest rates. Some major banks see more room for the index to run higher.

Goldman's strategists noted that rapid revenue growth at U.S. technology firms should be enough to fund AI investments in the coming years without hindering returns to shareholders.

They also added that U.S. election uncertainty could prompt companies to postpone large buybacks until 2025.

Goldman earlier modeled a 4% annual rise in companies buying back their own shares in 2024, rebounding from a 14% fall last year, the second-largest decline since the 2008 global financial crisis.

(Reporting by Kanchana Chakravarty, Roshan Abraham and Sruthi Shankar in Bengaluru; Editing by Mrigank Dhaniwala and Maju Samuel)