Key Points
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Looking at free cash flow helps create a common denominator between seven unique companies.
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Meta Platforms, Apple, Microsoft, and Nvidia look like the solid buys in the group.
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Alphabet, Tesla, and Amazon offer less immediate value to prospective buyers.
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Microsoft (NASDAQ: MSFT), Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), and Meta Platforms (NASDAQ: META) are pouring hundreds of billions of dollars into data centers, chips, and other infrastructure needed to support rising artificial intelligence (AI) adoption among consumers and enterprises. Nvidia (NASDAQ: NVDA) is raking in profits on its graphics processing unit (GPU) AI chips. Meanwhile, Tesla (NASDAQ: TSLA) and Apple (NASDAQ: AAPL) have taken different approaches to AI.
But no matter the business model, every company speaks the language of free cash flow (FCF), the cash profits remaining after funding operations and capital expenditures (capex). You can divide a company’s FCF by the stock’s market cap to calculate its FCF yield (the higher the percentage, the better).
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From there, investors will see just how AI spending is impacting each of these “Magnificent Seven” stocks and identify which stocks you may want to buy and which to avoid. Here is how they currently rank.
Image source: Getty Images.
1. Meta Platforms
Free-cash-flow yield: 2.8%
Social media giant Meta Platforms is vying for the top spot despite investing aggressively in AI data centers. Part of the reason for that is the stock’s recent slide on concerns over Mark Zuckerberg’s ambitious AI spending plans. Meta’s core advertising business continues to flourish and help fund all this spending. That said, it may not be enough to keep up with the company’s planned 2026 capex of $125 billion to $145 billion. If not, Meta’s FCF yield could easily drop.
2. Apple
Free-cash-flow yield: 2.8%
Critics initially saw Apple as a loser in the AI race. It whiffed on Apple Intelligence and then decided against building out its own AI infrastructure. Now, Apple is sitting pretty with over $129 billion in trailing-12-month FCF. Its new AI-capable Siri will use Alphabet’s Gemini models, keeping Apple’s cash flow primarily intact. It’s fair to wonder about Apple’s long-term growth prospects, given how little it has invested in its own AI to date. For now, it might be the best value in the Magnificent Seven.
3. Microsoft
Free-cash-flow yield: 2.5%
Microsoft’s ongoing slide has helped lift its FCF yield despite its massive AI expenditures. The company looked brilliant at first for partnering with OpenAI, but that relationship has soured somewhat, and its Copilot AI app hasn’t taken off as hoped. Fortunately, Microsoft’s software products have helped fund massive data center investments, and AI adoption is fueling booming demand for Azure cloud services. In the end, Microsoft may not need the best AI products to profit from its sticky enterprise relationships.
4. Nvidia
Free-cash-flow yield: 2.3%
As the leader in data center GPU chips, Nvidia has arguably been the biggest AI winner to date. Nvidia’s cash flow has exploded over the past several years. The only reason the stock’s FCF yield isn’t higher is that Nvidia’s share price keeps going up, too. Nvidia isn’t the cheapest, but it probably has the best near-term growth prospects on this list. Analysts expect the company’s revenue to soar even higher as Vera Rubin, Nvidia’s next-generation AI chip architecture, begins shipping later this year.
5. Alphabet
Free-cash-flow yield: 1.5%
Google’s parent company has been one of the most aggressive spenders in the AI race. Although its enormous advertising business helps foot the bill, the aggressive spending has weighed on the stock’s FCF yield. Alphabet believes its ambitious AI investments will pay off over time, with ample growth opportunities across Gemini, Google Cloud, and Waymo. The stock just isn’t offering that upside at a very appealing price right now.
6. Tesla
Free-cash-flow yield: 0.5%
Elon Musk is pivoting Tesla away from its roots in electric vehicles (EVs) toward autonomous vehicles and humanoid robotics. That future sounds exciting, but EVs still pay the bills for the time being. That places Tesla toward the bottom of this list with a paltry FCF yield of just 0.5%. It’s not that Tesla can’t deliver on Musk’s goals, but paying such a high valuation to find out makes the stock riskier than some of the other Magnificent Seven names.
7. Amazon
Free-cash-flow yield: -0.1%
As the world’s leading cloud services company, Amazon has almost no choice but to expand data center capacity to compete in AI and protect its market share. That’s tricky because Amazon’s e-commerce segment operates on thin margins and doesn’t produce much cash flow to help fund AI spending that could reach upward of $200 billion this year alone. The spending has cratered Amazon’s FCF, putting it last on this list with a negative FCF yield. Investors must hope that Amazon can monetize these investments over the coming years.
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Justin Pope has positions in Alphabet, Meta Platforms, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
