The Cash Flow Handoff

The Cash Flow Handoff

For the last decade, the big cloud companies (Amazon, Microsoft, Google, Meta, and Oracle) generated far more free cash flow (what's left after a company covers its operations and its capital spending) than the chipmakers that supply them.

Hyperscaler (another name for the big cloud companies) free cash flow peaked around $239 billion in late 2024. It has since fallen to roughly $159 billion, even as revenue kept climbing. The reason is the roughly $700 billion AI infrastructure bill. Amazon's trailing free cash flow is already slightly negative. Oracle's is deeply negative as it builds out data centers.

The chipmakers sit on the other side of that spending. Combined free cash flow at Nvidia, Micron, Broadcom, and Applied Materials has gone from about $84 billion in 2024 to $142 billion in the first quarter of this year. Nvidia by itself now earns around $119 billion in free cash flow.

Extend consensus revenue and current capex guidance forward and the lines cross. The chipmakers head toward $400 billion-plus by 2027 while the hyperscalers, weighed down by capital spending, dip below zero. The dashed section is an estimate, but the direction is already visible in the reported numbers.

Right now the money is moving from the companies building the infrastructure to the ones selling the picks and shovels. How long that lasts depends on when the infrastructure starts paying for itself.

Until next week,
Jacob

Visit Fjell Insights for more relevant insights including:

• The tmrw Newsletter

• Charts