By Johann M Cherian

Oct 27 (Reuters) - Investors are increasingly favoring

U.S. companies that channel capital toward AI innovation over

those offering traditional shareholder payouts such as dividends

and buybacks, even as the debate over soaring valuations and an

AI bubble rages on.

The priority for investors is long-term growth over

immediate profits, recognizing that companies neglecting AI

investment risk falling behind in what many consider the most

transformative technological shift of our time.

Goldman Sachs ( GS ) lowered its forecast for U.S. share

buyback growth to 9%, down from 12% previously, as it expects

the wave of artificial-intelligence-driven investment to extend

well into 2026.

"This is an AI-led bull market, and the market continues to

reward companies' growth outlook around AI. It is less about

shareholder returns at this moment than whether they can develop

AI and monetize on the opportunity," said Ohsung Kwon, chief

equity strategist at Wells Fargo ( WFC ).

Capital expenditure plans reported by S&P 500 companies have

ballooned to $1.2 trillion this year - the highest since

Trivariate Research started recording the data in 1999, with the

biggest nine companies making up nearly 30% of the share.

SHAREHOLDER PAYOUTS HIT RECORD TOO

Total shareholder returns for the 12 months ending in

June this year also hit a record $1.65 trillion, according to

S&P Global data, with dividends and share buybacks at $653.86

billion and $997.82 billion, respectively.

However, hefty dividends and buybacks alone have failed

to draw long-term investors.

Apple ( AAPL ) led the S&P 500 in capital returns during the

second quarter, according to S&P Global, with buybacks and

indicated dividends more than double Meta's.

And yet the iPhone maker's shares have lagged the rest of

the "Magnificent Seven" on concerns over its lack of bold AI

innovation.

On the flip side, shares of AI hyperscalers such as Alphabet

, Meta, Microsoft ( MSFT ) and Oracle have

logged double-digit price returns this year, surpassing broader

market gains.

Including Amazon.com ( AMZN ) and CoreWeave ( CRWV ), the

group unveiled a cumulative $400 billion in capex spending in

2025.

Salesforce ( CRM ), Accenture ( ACN ) and Cognizant

have also ramped up shareholder payouts, but Salesforce ( CRM ) and

Accenture ( ACN ) have fallen more than 23% this year, while Cognizant

lost 12%, reinforcing the view that capital returns alone won't

cut it without a compelling AI story.

"For those companies that are considered to be growth

stocks, you absolutely want to see an investment in the future

and a little bit less concern about share buybacks and

dividends," said Chris Zaccarelli, chief investment officer for

Northlight Asset Management.

But AI monetization is no longer confined to just Silicon

Valley. Sectors from banking to healthcare and consumer staples

are also betting big on the tech to trim costs.

Banking giant JPMorgan Chase ( JPM ) is investing about $2

billion annually on developing the technology, while Goldman

Sachs ( GS ) has been using AI for lending processes, regulatory

reporting as well as vendor management.

Similarly, defense majors Northrop Grumman ( NOC ) and

Lockheed Martin ( LMT ) are embedding AI into autonomous systems

and mission-critical platforms, while companies such as

Schrodinger and Recursion Pharmaceuticals ( RXRX ) are

utilizing AI for different stages of drug discovery.

Despite thinner margins, retail players including Walmart ( WMT )

, PepsiCo ( PEP ) and Mondelez ( MDLZ ) are also

cautiously investing in generative AI for supply-chain

optimization and customer engagement.

Analysts are still hesitant to call the current AI boom a

bubble, although most have warned that it could unravel at some

point as companies turn to debt and complex deal-making.

"Our best guess is that sometime by the second half of next

year, folks are going to start pounding their calculators and

saying: 'as great as the promise of all of is, is it fully

priced'," said Lisa Shalett, chief investment officer at Morgan

Stanley Wealth Management.