Buyback Kings Are Losing — Here's Who Wins Instead

There's a quiet humiliation happening inside the portfolios of dividend-and-buyback disciples. The companies that spent the last decade engineering EPS growth through share count reduction — rather than actual revenue expansion — are now watching AI-native compounders eat their lunch. Barclays put a research note behind what traders already felt in their P&L: aggressive buyback programs have underperformed the S&P 500 since the AI spending cycle kicked into overdrive. This isn't a rotation story. It's a fundamental repricing of what the market considers value creation. And for options traders, the spread between these two cohorts is setting up one of the cleaner asymmetric trades of the year.

What's Actually Happening

For years, buybacks were the ultimate financial alchemy — take cheap debt, reduce float, watch EPS inflate, collect multiple expansion. It worked beautifully in a zero-rate world where growth was scarce. Then came the large language models, the GPU clusters, and the $100B+ capex commitments from Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN), and Meta (META). Suddenly, the market started asking a different question: not "how much cash are you returning?" but "how much are you investing in not becoming irrelevant?"

What Barclays is flagging is the natural consequence of this shift. Tech companies that previously prioritized buybacks are now redirecting cash toward AI infrastructure — and the market is rewarding that pivot, not punishing it. Meanwhile, companies still running the old playbook — prioritizing capital returns over strategic AI investment — are being re-rated lower. The capital allocation signal has inverted. Free cash flow that flows back to shareholders now reads as a lack of competitive vision, not financial discipline. That's a seismic shift in how the market assigns multiples, and it has direct implications for which charts are building bases versus which ones are quietly rolling over.

Why Options Traders Should Pay Attention

Regime changes like this are exactly where options markets misprice risk — specifically, they tend to underprice the upside volatility in the winners while underestimating the downside drift in the losers. Here's the mechanical reason: implied volatility (IV) on large-cap tech names with heavy AI capex exposure has been surprisingly subdued relative to the magnitude of moves these stocks have made. The market is still anchoring on historical volatility from a period when these were predictable cash return machines, not high-growth infrastructure bets.

That IV anchoring creates an opportunity. When the market hasn't fully repriced the volatility regime of a stock, deep out-of-the-money calls — particularly in the LEAPS timeframe — get mispriced on the cheap side. You're essentially buying optionality on a business that's being re-underwritten by the market in real time.

The catalyst calendar matters here too. AI capex commitments are being disclosed quarterly, and each earnings cycle brings a new round of forward guidance on infrastructure spending. For companies like Meta (META), which recently announced a staggering $65B capex plan for 2025, or Alphabet (GOOGL) with its own accelerating spend, the next 12–18 months contain multiple high-conviction catalysts that could drive violent upside moves. Each earnings print where management doubles down on AI investment — rather than buybacks — is a potential premium-expansion event for calls you hold today.

On the other side of the trade, stocks that remain buyback-heavy without a credible AI narrative — think certain legacy enterprise software names or mature industrials with no clear AI roadmap — face a different options dynamic: call premiums remain cheap because the market doesn't expect explosive moves, but put skew is quietly building. That's useful information too.

The LEAPS Angle

Deep OTM LEAPS calls on the AI capex beneficiaries are where this thesis gets surgical. Consider the setup: you have large-cap names with legitimate fundamental re-rating potential, multi-quarter catalyst visibility, and — critically — options that are still priced off a pre-AI volatility baseline. A LEAPS call 20–30% out of the money with 12–18 months of duration on a name like Alphabet (GOOGL) or Amazon (AMZN) can still be purchased for pennies on the dollar relative to the potential payoff if the AI infrastructure buildout continues to outperform consensus expectations.

The math on these setups is what makes them compelling. A $0.04 LEAPS call that expires worthless costs you four cents. A $0.04 LEAPS call on a stock that moves 40% on an AI-driven earnings rerating can return 10x–25x that premium. You don't need to be right every time — you need to be right occasionally on high-quality setups where the risk is capped and the upside is structurally open-ended.

This is exactly the type of setup that traders use tools like the StrikeEdge scanner to surface — scanning for deep OTM LEAPS calls on large-cap names priced in the $0.01–$0.08 range, before a catalyst or re-rating event compresses that discount into a multi-bagger. The scanner filters out noise and flags the specific contracts where the price-to-potential ratio is most favorable, so you're not manually sifting through thousands of chains looking for the needle.

Specific names worth watching in this context: Meta (META), Alphabet (GOOGL), Amazon (AMZN), and — for a more contrarian angle — names like Salesforce (CRM) or Oracle (ORCL) that are pivoting hard toward AI infrastructure and could see sharp multiple re-ratings if their capex bets start showing revenue conversion in 2025–2026.

Key Risks to Watch

This thesis has a clear kill condition: if AI capex spending stalls, gets questioned by boards, or fails to show early ROI signals, the market could reverse and re-reward capital return discipline aggressively. We saw a preview of this dynamic in early 2025 when DeepSeek's cost-efficient model briefly sparked a selloff in high-capex AI names — the assumption that massive spending was necessary got challenged in a single news cycle.

Additionally, LEAPS calls on names that have already run hard carry real theta decay risk. If the anticipated re-rating takes longer than your expiration window, you lose premium even if you're ultimately right on direction. Timing mismatch between fundamental thesis and options expiration is the most common way a correct macro call still bleeds money. Duration selection matters — don't buy 6-month expiries on a thesis that needs 18 months to play out.

Finally, watch for a macro risk-off event. In a broad selloff, even AI darlings get sold indiscriminately, and deep OTM calls will deflate fast regardless of your fundamental conviction.

The market just told you something important: in the AI era, spending is signaling, and hoarding is surrender. The companies routing capital into buybacks instead of compute are getting re-rated in real time. For options traders, that divergence — between companies being re-underwritten higher and those quietly being abandoned — is a rare setup where the fundamental thesis aligns with the options structure. Find the AI capex compounders where LEAPS calls are still priced like the old regime, size them to what you can afford to lose entirely, and let the catalyst calendar work in your favor.