3 Stocks With Major Buyback Power: AI & Auto in Focus

Key Points

• Three stocks just announced $4.3 billion in new buyback capacity combined.
• Two tech names looking to gear their business toward AI now have buyback capacity between 5% and 10%.
• An auto parts stock announced a 21% increase in its dividend and could see a 70% increase in its buyback spending pace.

Buyback capacity is moving up in a very big way for three stocks. Two tech stocks hoping to leverage and profit from AI are indicating that management has significant confidence in generating future returns. Additionally, an automobile components company can now buy back nearly a third of its shares.

MongoDB Expands Share Buyback Program to $1 Billion

On June 4, MongoDB NASDAQ: MDB reported earnings that ended its streak of disappointing results. The company also announced a big increase to its share buyback program. MongoDB raised its share repurchase authorization by $800 million.

Now, its total buyback capacity is $1 billion. This is a substantial buyback capacity, equal to approximately 5.9% of the company’s market cap as of the June 13 close.

MongoDB’s stock has dropped dramatically over the past 16 months or so. The stock reached a share price of around $500 in February 2024, but now trades in the low $200 range. MongoDB has never actually spent on stock buybacks before, and the timing of the authorization suggests the company sees value in its stock near current levels.

This was a welcome surprise, especially when paired with the company’s Q1 financials that beat on sales and adjusted earnings per share (EPS). Shares rose approximately 13% in the day after the results. This comes after the company’s March report, when shares saw a post-earnings drop of 27%.

The company issued its full fiscal year outlook that quarter, and analysts considered it disappointing. It has been waiting to gain traction in AI application-building use cases, but progress has been slow. Still, the company’s subscription growth last quarter was strong at 22%.

Autoliv Launches $2.5 Billion Share Repurchase Program

Next up is Autoliv NYSE: ALV. The company just announced a massive share repurchase program. The company’s $2.5 billion authorization is equal to around 30% of its market capitalization as of the June 13 close. The program will last through the end of 2029, or approximately 18 quarters. Autoliv would need to significantly accelerate its buyback pace to utilize this full capacity over that period.

Since the company began repurchasing stock back in 2022, it has averaged buyback spending of around $82 million per quarter. To use the full $2.5 billion over 18 quarters, that number would need to ramp up to around $139 million per quarter, an increase of nearly 70%.

Autoliv also raised its dividend by 21%. Its next $0.85 per share dividend will be payable on Sept. 23 to shareholders of record on Sept. 5. This quarterly figure implies an annual dividend payout of $3.40, giving the stock an indicated dividend yield of approximately 3.2%.

DocuSign Adds $1 Billion to Share Buyback Authorization

DocuSign NASDAQ: DOCU, a software firm implementing AI, also just announced a substantial addition to its buyback authorization.

The company’s additional share buyback authorization is worth $1 billion. This adds to the stock’s previous authorization, bringing its total buyback capacity to $1.4 billion. This total is equal to around 9.4% of the company’s market capitalization as of the June 13 close. DocuSign has really stepped up its buybacks recently, spending $700 million on repurchases over the last 12 months. From 2020 to 2023, its average annual spending was only around $300 million.

Shares have been moving on an upward trajectory, rising around 44% over the past 52 weeks. This strong performance comes even after the firm’s latest earnings, which caused shares to fall 19%. However, the company’s recent rise in buybacks indicates confidence in the generally improving outlook of its own business. Recent buyback activity and the sizeable new authorization suggest that the company thinks shares can keep rising.

DocuSign is in the process of releasing AI features for customers powered by its Iris AI engine. It plans to roll out AI contract agents later this year. This tool will analyze contracts in seconds, creating efficiencies over manual contract review.

These increases in share buyback capacity seem to indicate that management is confident in the direction of shares going forward. For Mongo, this may be more due to the huge drop in its share price. Management may think the stock is hitting a bottom near current levels.

For DocuSign, management may be bullish on its coming AI features and believes that markets are undervaluing its growth prospects. For Autoliv, the sheer size of the new authorization suggests a strong commitment to shareholder returns and confidence in long-term performance, especially following its recent dividend increase.