Donald Trump’s Presidency Will Drive a  Trillion Investment—Not AI

Despite Trump’s plans to change the direction of AI in America, another business venture is expected to flourish under his direction.

Donald Trump’s Inauguration Day, January 20. He will become the second president in the country’s history to serve two nonconsecutive terms when he formally takes the oath of office. More significantly, Wall Street will enter a new era.

During Trump’s first term in the White House, the stock market rose dramatically. The Dow Jones Industrial Average (^DJI 0.78%), benchmark S&P 500 (^GSPC 1.00%), and innovation-inspired Nasdaq Composite (^IXIC 1.51%) soared in value by 57%, 70%, and 142%, respectively, with Trump in office. It is worth mentioning that the stock market rose significantly following Trump’s election victory in November.

However, the key to investing is to focus on the future rather than dwelling too much on the past.

Businesses will be putting more money into key areas when Trump takes office. It might make sense to think that spending on artificial intelligence (AI) solutions will go through the roof during Trump’s second term. However, there’s another investment that companies are likely to spend a lot more on than AI.

The future of AI in the US will change because of Trump

There’s no doubt that Donald Trump will be a big part of what’s been the biggest trend on Wall Street. Estimates from PwC in Sizing the Prize show that AI could add $15.7 trillion to the world economy by 2030. This would mean a 26% rise in the global gross domestic product.

At least initially, Trump’s largest impact in the AI space will be the revocation of former President Joe Biden’s AI executive order (EO). In addition to eliminating some oversight committees, the revocation of Biden’s AI EO will enable the incoming administration to establish a brand-new framework for a quickly developing but still infancy technology.

Specifically, Trump intends to prioritize fostering domestic AI innovation, particularly in the context of national security. Cross-border cooperation was encouraged by the Biden AI EO, but Trump’s first term in office and his campaign words point to a protectionist and America-first stance.

Additionally, it’s likely that the Trump administration will impose less regulations on AI. Safety-testing regulations will still be in place in the business, but this should pave the way for more product development and merger and acquisition activity.

With AI moving beyond hardware and into practical applications that may power self-driving cars, virtual agents, and cloud data protection, companies have every reason to increase their capital expenditures on AI innovation under President Trump.

Under Trump’s leadership, this almost $4 trillion investment will catch fire

The largest factor driving stock price growth during Donald Trump’s next four years in office may be share repurchase activity, even though artificial intelligence may still be the hottest thing on Wall Street.

Shortly after the start of his first term, in December 2017, Trump signed his signature Tax Cuts and Jobs Act (TCJA) into law. In 2018, the TCJA permanently slashed the corporate income tax rate from 35% to 21%, while allowing for lower personal income tax levels that are scheduled to expire at the end of this year. For firms, this is the lowest peak marginal tax rate since 1939.

Even if this is only a correlation, we saw a sharp increase in S&P 500 businesses’ share buyback activity after the TCJA went into force.

The 500 businesses that comprise the S&P 500 repurchased $100 billion to $150 billion worth of common stock every quarter on average in the seven years before the TCJA:

  • 2011: $467 billion in total buybacks from S&P 500 companies
  • 2012: $413 billion
  • 2013: $496 billion
  • 2014: $565 billion
  • 2015: $592 billion
  • 2016: $553 billion
  • 2017: $540 billion

Now, examine more closely what transpired after the TCJA was passed. Remember that the 2020 downturn was caused by the unprecedented uncertainties around COVID-19 pandemic lockdowns:

  • 2018: $840 billion in total buybacks from S&P 500 companies
  • 2019: $749 billion
  • 2020: $538 billion
  • 2021: $919 billion
  • 2022: $950 billion
  • 2023: $815 billion
  • 2024: $924 billion (estimate per Goldman Sachs)
  • 2025: $1,075 billion (estimate per Goldman Sachs)

Buyback activity on the S&P 500 increased from $100 billion to $150 billion per quarter before to the TCJA to a new normal of $200 billion to $250 billion per quarter after the TCJA.

After Trump won in November, there would be no more attempts to raise the top corporate income tax rate for at least four more years. What’s more, it created the opportunity for more cuts.

Donald Trump suggested lowering the corporate income tax rate for companies that manufacture their goods in the United States from 21% to 15% during his campaign. The federal debt would most likely be impacted by a reduced tax rate, but more stock buybacks would be possible.

Over the course of Trump’s second term, the total amount of S&P 500 buyback activity should exceed $4 trillion.

The most significant companies on Wall Street have profited greatly from buybacks

The importance of buybacks cannot be understated, even while there is no denying that cloud computing and artificial intelligence have contributed significantly to the rally for some of Wall Street’s most significant corporations.

According to S&P Dow Jones Indices, a division of S&P Global, the S&P 500 corporations collectively bought about $7 trillion worth of their own stock over the preceding 10-year period, which ended on September 30. Only seven components of the S&P 500 make up roughly one quarter of this repurchase activity.

  • Apple: $695.3 billion in trailing-10-year buybacks (as of Sept. 30)
  • Alphabet: $286.7 billion
  • Microsoft: $196.2 billion
  • Meta Platforms: $186.2 billion
  • Wells Fargo: $128.4 billion
  • JPMorgan Chase: $128 billion
  • Bank of America: $119.9 billion

Reducing the number of outstanding shares over time can raise earnings per share (EPS) for businesses with stable or increasing net income. Value-conscious investors may find a firm more essentially appealing if its EPS rises.

For instance, after beginning its buyback program in 2013, Apple’s outstanding share count has decreased by almost 43%. All six of the aforementioned companies have reduced their peak outstanding share count by 29% to 43%, with the exception of Meta, whose share count has decreased by 13%. Both their share price and their individual EPS are significantly rising as a result of this.

There should be record-breaking share repurchase activity during Donald Trump’s second term.

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