AI Boom Drains Tech Giants' Free Cash Flow

The increasing expenses associated with artificial intelligence infrastructure are causing concern among investors, particularly impacting free cash flow. Alphabet's third quarter of 2026 saw a capital expenditure of $51.4 billion against $42.3 billion in operating cash flow, resulting in approximately $9.1 billion in negative free cash flow. Similarly, Amazon reported negative free cash flow of $42.4 billion over the preceding twelve months.

This shift marks a departure from previous years when tech giants were known for high margins and scalable growth with minimal capital spending. Now, substantial investments in data centers and chips are being made, raising questions about future returns. The VictoryShares Free Cash Flow ETF (VFLO) stands out with its $12.5 billion in assets under management and strong historical outperformance since its inception.

VFLO's strategy incorporates both historical and estimated future free cash flow, coupled with a growth screen. This approach uses an average of trailing 12-month and estimated next 12-month free cash flow, divided by enterprise value. The ETF's methodology also includes growth filters based on sales, EBITDA, and EPS trends.

Index methodology selects 50 out of 400 large-cap U.S. companies based on free cash flow yield and growth scores. Constituents are weighted by free cash flow and rebalanced quarterly. Over a three-year period, VFLO achieved a 27.90% annualized return, outperforming the S&P 500 ETF (19.17%) and Nasdaq-100 ETF (21.46%).

Despite its strong performance, VFLO has a 0.39% expense ratio, which poses a long-term hurdle compared to broader market ETFs. Its diversification rules cap individual holdings at 4% and sector weights at 45%. As of September 30, 2026, information technology comprised 30.45% of the portfolio, with energy at 23.3%.