The semiconductor market is showing an unprecedented imbalance. Leading chip manufacturers are reaching record levels of free cash flow, while tech giants investing billions in artificial intelligence are, for the first time in their history, facing a negative value for this key financial metric.
Crystallization of "Cash Machines"
An analysis of forecast data shows that four leading chipmakers — Nvidia (NVDA), Micron (MU), Broadcom (AVGO), and Applied Materials (AMAT) — will generate a combined free cash flow of $430 billion over the next 12 months. This figure is more than three times the results from two years ago, indicating explosive growth in operational efficiency and the monopoly position of these companies in the AI supply chain.
At the same time, the picture for the largest players in the artificial intelligence sector has turned out to be diametrically opposite. The combined free cash flow of Amazon (AMZN), Alphabet (GOOGL), Meta (META), Microsoft (MSFT), and Oracle (ORCL) will turn negative for the first time on record. This is a sharp reversal: as recently as 2024, these companies reported a total figure of over $260 billion.
The Price of the AI Race
The reason for this divergence is the explosive growth in capital expenditures on AI infrastructure. The AI-related spending of these five giants will total $1.8 trillion in 2026 and 2027. Essentially, chipmakers are turning into "cash machines," while AI giants are burning record amounts of capital in an attempt to maintain their lead in the race for computing power.
This contrast is a shocking statistic that raises questions about the sustainability of the entire investment cycle. Economist Rémy Bourgeau rightly notes that sooner or later, the tech giants will have to make money again. The question is what will happen to chip manufacturers when that cash flow dries up.
The Chinese factor deserves special attention. Chinese giants continue to sell their models worldwide for a fraction of American prices and purchase Chinese chips, which only increases pressure on Western players. The current influx of capital from AI giants to chipmakers cannot be considered infinite, and in my opinion, this is the key risk for long-term investors. The market may be underestimating the fragility of this configuration.