Microsoft inflates its stock price through a $60B buyback of shares

Microsoft was preparing to lay off another 650 employees from its gaming division last week, the company announced this week that it will be spending $60B of its own money to buyback some of its own stocks.

Along with the buyback announcement, which has no set expiration and can be canceled at any time, the company also revealed a 10% increase in its dividend payout. These announcements led to a 2% rise in the stock on Wall Street and a 0.8% gain on Nasdaq early Tuesday morning.

A $60 billion share buyback program

Microsoft, the tech giant, unveiled a new $60 billion share buyback program along with a 10% boost to its quarterly dividend. These actions, approved by the company’s board on Monday, September 16, 2024, are part of its continued commitment to returning value to shareholders.

This new buyback replaces a similar $60 billion initiative launched in 2021 and has no fixed expiration date, allowing Microsoft flexibility in executing the plan. With this move, Microsoft ranks among the top U.S. companies in share repurchases for the year, following only Apple and Alphabet.

Microsoft share has shown robust financial performance, reporting a 77.6% increase in capital spending for the quarter ending June 30, primarily driven by AI-related expenses. However, the company observed a slowdown in growth within its Azure cloud business during that period, though it anticipates growth will pick up in the second half of fiscal 2025.

The tech industry is facing pressure to demonstrate concrete benefits from AI investments. Microsoft is among the few large companies that disclose AI contributions in their quarterly earnings reports, even as the overall impact on financial results remains in its early stages.

Microsoft Gaming makes another 650 job cuts

Microsoft continued its cost-cutting measures in the Xbox and video games division on Thursday, following its $68.7 billion acquisition of Activision-Blizzard, by laying off an additional 650 employees.

Phil Spencer, CEO of Microsoft Gaming, reassured staff that these latest layoffs do not indicate the cancellation of any upcoming games, devices, or experiences, and confirmed that no further Microsoft game studios will be closed.

“In aligning our post-acquisition team structure and managing our business, we have made the decision to eliminate approximately 650 roles across Microsoft Gaming—primarily in corporate and supporting functions—to position ourselves for long-term success,” Spencer stated in an internal memo shared by Bloomberg.

Microsoft is heavily investing in artificial intelligence (AI)

The company has been facing pressure from investors to demonstrate returns on its substantial AI investments. In July, Microsoft announced plans to increase spending on AI infrastructure in the current fiscal year to meet growing demand.

To showcase Microsoft AI progress, Microsoft held a “Wave 2” event on the same day as the buyback announcement. The company unveiled several new AI features and upgrades to its Copilot AI assistant. These include the general availability of Copilot in Excel and OneDrive, as well as an Outlook feature that summarizes emails.

“We are committed to ensuring AI helps advance innovation and drives growth across every sector of the economy,” said Microsoft CEO Satya Nadella, in a statement. He said the initiative brings “together financial and industry leaders to build the infrastructure of the future and power it in a sustainable way.”

The group aims to assemble $30 billion of initial capital, with a future goal of bringing in up to $100 billion, including from debt financing.

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