Comment by Galanwe
1 day ago
I thought about that a lot too, and in the end I think it just comes down to stupid economics: What do you want them to do with all this money?
1) Most top US tech companies are flooded of money. Everyone dumps money in the SP500.
2) This money has to go somewhere. You can't just redistribute it as dividends, otherwise it's an admission that you won't grow and giving you more money would be a 0 sum game.
3) So you have to invest it somehow, somewhere.
4) Obviously you can spend that money buying whatever company you can.
5) Once you've bought realistically enough, you just hire more, and people will think that there should be some kind of linear relationship between resources spent and revenue growth.
6) You can also do grand projects, like the metaverse, convert all you software to blockchains, become AI native, etc. and dump billions on these.
So essentially it's all about projecting growth and potential.
Money that people “dump” into the S&P isn’t going to the company’s bank account. It’s purchasing shares on the market that were owned by other third party shareholders.
For example, in 2025 Meta was a net purchaser of their own stock ($26 Bn).
These companies are awash in cash because they’re generating revenue in excess of their costs. Nothing to do with the amount of money people put into the S&P 500.
Secondarily, this is exactly why I agree that LLMs likely won’t have the impact OP believes it will. Companies hire not just for output, but for
1. Training (future management, future architects, future bankers, future developers) 2. Generally adding smart people to their teams, capturing a cornered resource 3. Showing governments and shareholders that they have created “jobs”
And a plethora of other reasons that I can’t think of.
John D. Rockefeller (pioneer of the modern corporation) is quoted as saying: “Nobody does anything if he can get anybody else to do it. As soon as you can, get someone who you can rely on, train him in the work, sit down, cock up your heels and think out some way for the Standard Oil to make some money.”
Well, when the company issues shares, then the money goes into their account, right?
Meta was a $26 Bn net purchaser (opposite of issuer)
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Companies buy back shares as a different way than dividends to enrich their shareholders.
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yes, if it sells them on the market.
The last time meta sold stock on the market was a primary stock offering in December 2013, roughly a year and a half after its initial public offering (IPO).
I find it crazy that so many people misunderstand this basic fact about how the market works.
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I think this is right, but it can be stated more simply as companies hire to invest in growth, and they conduct layoffs when growth slows (not because of AI or "improved productivity"). Everything else is storytelling and emergent phenomena.
Incentives in companies are such that there is never a shortage of people pitching projects that require more headcount. Growth justifies the decision to hire more headcount, but the connection from increased headcount to growth is tenuous and usually difficult to impossible to demonstrate with any real confidence. It wasn't so difficult pre-industrialization, but mechanization, automation, computerization and now AI have progressively made it harder and harder to really understand the economics of labor. You do need to hire people to pursue new areas, but also every incremental person adds to communication overhead. The effects of this depend on the org structure and the operating environment over time, so what may have been a good idea at the time can flip to net negative due to outside forces beyond the control or foresight of any decision maker. This explains why companies do layoffs while still hiring at the same time.
Facebook doesn't get the money when you buy a share of META -- that goes to the person you bought the share from. They could do an offering to raise money, but they aren't. They've been doing the opposite, they've been buying back shares at a significant rate. Some of it is to offset stock based compensation, and some of it is just stock pumping.
> Facebook doesn't get the money when you buy a share of META
Technically no, but in reality yes, because shares are used as currency.
For instance, META does not acquire companies using cash, they use their own shares as payment. The higher the stock price, the lower the dilution.
Same thing for stock options and RSU.
So, it's true that stock prices don't translate 1:1 to cash inflows, but wherever stocks are currency (employee compensation, benefits, acquisitions, etc), it does translate.
The high share prices do subsidize Meta's share-based compensation, which seems to make up a substantial portion of the total wage bill. High and rising share prices also allow Meta to purchase other companies with Meta shares, instead of having to pay cash, which is beneficial in many ways.
That's an illusion. They book the expense at the cost of the share on grant date, so it looks good on the P&L, but they have to purchase the share at the price on the exercise date, so it's a significant drain on free cash flow.
Given that the thesis of the original post is that companies are swimming in money due to high stock prices; significant drains on free cash flows probably aren't the cause.
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I think this is basically right, but I'd phrase it as "capital allocation theater" rather than just stupidity
Which feels like a longer way of saying 'stupidity'.
If we call it "stupidity" then a lot of money simply vaporizes overnight.
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> You can't just redistribute it as dividends, otherwise it's an admission that you won't grow and giving you more money would be a 0 sum game.
I don't understand the logic behind this.
"Tech stocks are growth stocks", that's pretty much how the market sees them anyway.
So essentially, they are not expected to be boring businesses yielding stable dividends to investors. That's your aristocrats stocks postioning: J&K, P&G, etc.
What is expected from tech stocks is the opposite: small to no dividend, reinvesting inflows into ever growing new businesses and technologies. A tech stock distributing dividends to shareholders instead of reinvesting in new projects would be seen as a mark of failure to innovate, incapacity to grow.
One tangent from this is that few of the big 'household name' tech products that have become infrastructure for modern life for huge amounts of people seem to be allowed to be mature and stable, they must be kept changing (beyond maintenance) or to offer some other new thing.
How much buybacks do tech stocks do?
2025 Apple - 100 billion alphabet - 55 billion Meta - 45 billion
These are roughly 2-2.5% of market cap.
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Correct or not, and I'm sure it is, it seems fucking insane to me. We're still just apes.
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The observation is right but the causality is off. The money comes from extraordinarily profitable lines of business rather than investors. Hiring is driven less by business concerns and more by various layers of management advancing their careers by managing more and larger teams.
> Most top US tech companies are flooded of money. Everyone dumps money in the SP500.
That’s not how it works? The company doesn’t make money every time someone buys SP500 or a share.
Isn't it to some degree? My understanding was with index funds was that the index is required to be backed by some in-kind holding of the component index products by whomever minted the index share. If more people buy the index then more of those in-kind backing products must be held e.g. as collateral. If you're REQUIRED to buy this stock because of your index/etf positions, necessarily the demand goes up, and necessarily the price goes up too. Companies _definitely_ materially benefit from stock price increases.
No, that's not correct, in general.
When people buy into an index fund/ETF, they are buying existing shares of that fund (which are already backed by the component stocks of that index) from other people who already have them. If there are 1M shares of an index fund that tracks the S&P500 floating around out there, and you go into your brokerage account and buy 1,000 shares, you have not increased that 1M figure by 1,000. There are still 1M shares; you have just bought 1,000 shares from an existing owner (perhaps another individual investor with an eTrade account just like you) who wanted to sell them.
In a case where an index fund does have to buy more shares of the underlying components (for rebalancing purposes or whatever), they are buying shares from other people on the open market: institutional investors, hedge funds, prop traders, etc. They are not buying from the company behind the stock ticker.
Yes, companies do sometimes issue new shares to the open market in order to raise cash. But that's not a daily activity; some companies may go years (or even forever) without doing another public offering beyond their IPO. Other companies do it somewhat regularly, perhaps a couple or few times a year. And some just do it when their stock price is high and they think offering more shares would be a good deal for them.
You’re making this unnecessarily complicated. Whether you purchased shares of a company through an ETF or directly, through your personal trading account, that money only goes to the person or entity that you bought the shares from. Maybe with some trading fees going to your broker (uncommon now thanks to the trend set by Robinhood).
This coupled with incentives by middle upper middle mng to grow headcount as that is how you progress in mng career path regardless of need.
If apple blows a few billion on excess headcount, no one will bat n eye. Senior director of internal tool org ABC needs 10 more people to get the next version out when a multi year long miss has no material impact.
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