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Free cash flow (FCF) is now a central focus for investors evaluating large technology companies, especially the hyperscalers, whose dramatic growth in capital expenditures has pressured FCF.
We define FCF, show where leading technology companies stand on results and consensus forecasts, and then examine whether rising investment spending shifts each company’s position in the corporate life cycle.
We calculate return on incremental invested capital (ROIIC) to assess the return on the marginal dollar invested and find that patterns vary widely across the hyperscalers.
We look at the relationship between FCF and ROIC, emphasizing that negative FCF is perfectly fine provided ROIC exceeds the cost of capital.
Finally, we explore how consensus estimates have changed for key value drivers, including sales, operating profits, and capital expenditures.
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