Big Tech's $2.7 trillion AI bill comes due: Chart of the Day
The "Magnificent Seven" plus Broadcom (AVGO) and Oracle (ORCL) have lost roughly $2.7 trillion in market value in June, according to Yahoo Finance analysis, as investors take a harder look at the companies funding the AI build-out.
Initially, this month's reset focused on the Magnificent Seven. Now the pressure captures Broadcom and Oracle — two names closely tied to the AI infrastructure build-out.
The reset cuts across both sides of the AI complex.
Nvidia (NVDA) and Broadcom are tied to the hardware boom. Microsoft (MSFT), Alphabet (GOOGL, GOOG), Amazon (AMZN), Meta (META), and Oracle are tied to the spending boom. Apple (AAPL) and Tesla (TSLA) remain part of the megacap growth trade investors have treated as an AI-adjacent proxy.
The market is putting a price on the cost of the build-out.
Nomura cross-asset strategist Charlie McElligott framed the hyperscalers as "the funding shorts" behind AI bottleneck trades across memory, chips, optical, networks, servers, and power infrastructure.
In plain English, the companies spending on AI are also the revenue sources for many of the stocks investors have been chasing.
Hyperscaler free cash flow, or cash left after spending, is projected to fall sharply as the AI build-out becomes increasingly expensive. That cash can fund buybacks, acquisitions, dividends, and future investments. It is also the cushion investors have come to expect from the biggest tech platforms.
Now that cushion is getting squeezed. Data centers, chips, power, networking gear, and cloud infrastructure are becoming the entry fee for staying in the AI race.
Investors have spent much of the year rewarding the bottlenecks powering the AI boom. The question now is whether Big Tech can keep paying for them without losing the cash-flow story investors loved.
The biggest AI names are no longer trading solely on the promise of future revenue. They are trading on the cost of getting there.
Jared Blikre is the global markets and data editor for Yahoo Finance. Follow him on X at @SPYJared or email him at jaredblikre@yahooinc.com.
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Big Tech's AI cash cushion is plummeting: Chart of the Day
Yahoo Finance Markets and Data Editor Jared Blikre and Mahoney Asset Management CEO Ken Mahoney discuss the potentially problematic spending of AI hyperscalers.
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Ranking the "Magnificent Seven" From Most to Least Attractive, Based on Future Cash Flow
Earlier this month, all of Wall Street's major indexes reached fresh record highs. While artificial intelligence (AI) has been the stock market's prime catalyst, it's the "Magnificent Seven" that have done most of the heavy lifting. The Magnificent Seven is comprised of:
Nvidia (NASDAQ: NVDA)
Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG)
Apple (NASDAQ: AAPL)
Microsoft (NASDAQ: MSFT)
Amazon (NASDAQ: AMZN)
Tesla (NASDAQ: TSLA)
Meta Platforms (NASDAQ: META)
Although each of these companies possesses well-defined competitive advantages, their outlooks can vary. Arguably, no metric does a better job of evaluating these foundational companies than cash flow.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
Image source: Getty Images. Ranking the Magnificent Seven by their future cash flow
While the traditional price-to-earnings ratio is useful for quickly evaluating mature businesses, this time-tested valuation tool can get tripped up by growth stocks. With the Magnificent Seven aggressively reinvesting their cash flow into high-growth initiatives, the price-to-cash-flow ratio offers a more comprehensive look at whether these stocks are potential bargains or pitfalls.
Based on Wall Street's consensus cash-flow-per-share estimates for the following year, here's how the Magnificent Seven rank, from cheapest (i.e., most attractive) to priciest:
Meta Platforms: 9 times estimated forward-year cash flow
Amazon: 10.86
Microsoft:12.98
Nvidia: 16.54
Alphabet: 17.97
Apple: 27.42
Tesla: 80.74
On one end of the spectrum, Tesla and Apple appear egregiously expensive, relative to the cash flow they're generating. Even Google parent Alphabet, which, in hindsight, was historically inexpensive at this time last year, is no longer a screaming bargain.
On the other hand, AI titans Nvidia and Microsoft are becoming more palatable to fundamentally focused investors. However, neither company can hold a candle to the value offered by Meta Platforms and Amazon.
Image source: Getty Images. Meta Platforms and Amazon are the two clearest bargains within the Magnificent Seven
Despite Wall Street's major indexes rocketing to new highs three weeks ago, shares of Meta have gone nowhere since the start of 2025. Meta CEO Mark Zuckerberg has repeatedly raised his company's capital expenditures forecast for AI, leading to worries about future margin constraints.
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The Market Is Panicking on Broadcom. This Is Why I Keep Buying The Stock
Quick Read
Broadcom (AVGO) posted 48% revenue growth with AI chip sales hitting $10.8B and free cash flow converting at 46% of revenue.
Hock Tan targets $100B in AI revenue by 2027, and 44 of 48 analysts rate AVGO a Buy against a $524 consensus price target.
Act now: the analyst who called NVIDIA in 2010 just named his top 10 AI stocks — and Broadcom didn't make the cut. Grab the names FREE today.
I keep clicking buy on Broadcom (NASDAQ:AVGO) because the math is too good to walk away from, even with a $39 trillion national debt clock ticking and new Fed Chairman Kevin Warsh signaling that borrowing costs are not coming back down on anyone's preferred schedule. My friends ask why I am adding to the same name in the middle of a macro panic. The answer fits on a napkin: I am buying a cash machine the rest of the market is treating like a cyclical chip stock.
24/7 WallSt The thesis is simple. The global buildout of enterprise AI cannot happen without Broadcom's custom silicon and switching fabric. CEO Hock Tan said it plainly on the June call: "Broadcom achieved record revenue, operating profit and free cash flow in Q2 driven by accelerating growth in AI semiconductor revenue and strong operating leverage." That is the income statement talking.
The Receipts
Start with the most recent quarter. Q2 FY2026 revenue landed at $22.187 billion, up 47.9% year over year, with non-GAAP EPS of $2.44, the eighth consecutive EPS beat. AI semiconductor revenue alone hit $10.80 billion, up 143%. Operating margin came in around 49%, with free cash flow of $10.262 billion, or 46% of revenue. Adjusted EBITDA margin was 69% of revenue. Tan guides Q3 to ~$29.4 billion in revenue and $16.0 billion of AI revenue, more than 200% YoY growth. His stated long-term target is to exceed $100 billion in AI sales by 2027.
Act now: the analyst who called NVIDIA in 2010 just named his top 10 AI stocks — and Broadcom didn't make the cut. Grab the names FREE today.
Second, the balance sheet absorbs macro shocks. Cash and equivalents sit at $19.628 billion, up 107.22%, with total liabilities down 3.76% year over year and shareholders' equity up 26.02%. Capex in Q2 was only $231 million. That is what asset-light cash conversion looks like.
Third, the income story I actually care about. Broadcom just raised its dividend 10% to $0.65 quarterly, the 15th consecutive annual increase since fiscal 2011, while running a $10 billion buyback authorization through December 31, 2026. Full year FY2025 free cash flow was $26.914 billion. Retirement accounts get paid out of cash flow like that.
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Got $1,000? Why Broadcom's Guidance Created the Ultimate Artificial Intelligence (AI) Buying Opportunity.
Broadcom (NASDAQ: AVGO) was one of the hottest stocks of 2026 before it reported Q2 earnings. It was up nearly 40% before selling off sharply. However, the stock is still up 18% for the year, which is still quite impressive for a six-month return.
One of the primary reasons for Broadcom's sell-off was that it didn't significantly raise its 2027 guidance. That's just an absurd reaction for the market, and it has created a great buying opportunity.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
Image source: The Motley Fool. Broadcom's custom AI chip business is gaining momentum
Broadcom does a lot of different things as a company, but what's most exciting for investors is its ASICs -- application-specific integrated circuits. These are chips that are designed with one purpose in mind and excel at it. ASICs have been used for a long time, and they're gaining momentum in the AI industry. Broadcom partners with an AI hyperscaler to design an ASIC, and then those companies buy them exclusively from Broadcom. These custom AI chips often outperform GPU-based training in terms of cost, making them even more popular than ever.
Broadcom has four key clients: Alphabet, Meta Platforms, OpenAI, and Anthropic. These four clients will help boost its AI semiconductor revenue to more than $100 billion by 2027. That's a massive goal, as Broadcom's current trailing-12-month revenue is $75 billion, and most of that is from non-AI sources.
Broadcom is starting a massive, multi-year growth trajectory, yet the market is disappointed that it wasn't more. That's a silly reason to sell a stock, and long-term investors should take advantage of the sell-off and begin loading up on shares.
From a valuation perspective, Broadcom does look expensive at 35 times forward earnings. However, 2027 was the year of major growth, and based on 2027's earnings estimate, we get a 21x multiple.
AVGO PE Ratio (Forward) data by YCharts That's still not cheap, but if Broadcom's custom AI chip business really starts to take market share from GPUs, it could lead to even further growth in 2028 and beyond as the AI build-out is expected to last through at least 2030, and maybe beyond. That leaves plenty of years for Broadcom's business to continue growing, and I think it makes for a great long-term investment, especially after the recent sell-off.
Should you buy stock in Broadcom right now?
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Is Alphabet the Best "Magnificent Seven" AI Stock?
The "Magnificent Seven" -- Nvidia, Apple, Microsoft, Amazon, Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), Meta Platforms, and Tesla -- have carried the market for three years now, and most investors own at least one of them whether they meant to or not (thanks to index funds). But the seven have drifted far apart. Tesla trades at well over 100 times forward earnings, even as it fights its way through a hard stretch in autos. Nvidia, meanwhile, is valued more conservatively and sits at the center of the artificial intelligence (AI) build-out. And Apple is building momentum in both its business and its stock over the last year.
But if you could only add one of them today, which deserves the money?
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
I think Alphabet should be a top choice.
Image source: Getty Images. A cloud business pulling its weight
Most people probably still think of Alphabet as a search and advertising business. And it is. But there's more to the business.
Sure, Google Search and other advertising revenue rose 19% year over year in the first quarter of 2026 to $60.4 billion, with management saying queries hit an all-time high as AI features pulled people back in rather than pushing them away.
But there's a fast-growing and increasingly important part of the business that has become a major catalyst: Google Cloud, its cloud computing segment. First-quarter cloud revenue jumped 63% year over year to $20 billion, an acceleration from the 48% growth it posted just one quarter earlier. That pace is faster than what either of its two larger rivals reported in their most recent quarters.
Further, Google Cloud's operating income roughly tripled year over year to $6.6 billion, and the segment's operating margin climbed to 32.9% from 17.8% a year earlier.
And demand is outpacing supply.
"Our Cloud revenue would have been higher if we were able to meet the demand," CEO Sundar Pichai said on the first-quarter earnings call.
Indeed, the segment's backlog -- contracted work not yet recognized as revenue -- nearly doubled in a single quarter to $462 billion.
Pichai tied the edge to owning the whole stack.
"The fact that we own frontier models, own the silicon, really helps us stay ahead of the curve," he said on the call, pointing to Alphabet's custom chips and its Gemini models as a combination rivals can't easily copy.
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Broadcom Builds Custom Chips for Google, Meta, Anthropic, and OpenAI. At 25 Times Forward Earnings, It's the Cheapest Mega-Cap AI Stock Nobody Talks About.
Broadcom (NASDAQ: AVGO) is often overlooked in discussions about the AI market, which tend to focus on Nvidia's (NASDAQ: NVDA) data center GPUs. However, Broadcom is also one of the fastest-growing chipmakers in the AI market.
Unlike Nvidia, which produces general-purpose GPUs for training AI algorithms, Broadcom builds custom application-specific integrated circuits (ASICs) for accelerating AI tasks. At scale, these custom AI accelerators can be more cost-effective than Nvidia's data center GPUs.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
Image source: Getty Images. That's why AI giants like Alphabet's Google, Meta Platforms, OpenAI, and Anthropic have all been buying Broadcom's AI chips. Let's see how much larger Broadcom's AI business could grow -- and why it's still a great buy.
How rapidly is Broadcom's AI business growing?
In fiscal 2025 (which ended last November), Broadcom's AI chip sales surged 65% to $20 billion, accounting for 31% of its top line. It expects that figure to rise to at least $100 billion in fiscal 2027, accounting for more than 58% of its projected revenue.
Broadcom's hyperscale customers should ramp up their chip purchases as the AI market expands. By installing more of those custom ASICs, they can reduce their infrastructure costs and curb their long-term dependence on Nvidia. While its ASICs aren't as flexible as Nvidia's GPUs for training purposes, they're well-suited for specific inference tasks.
Broadcom also sells a broad range of non-AI chips for mobile, data center, networking, wireless, storage, and industrial applications, as well as infrastructure and security software. Those businesses aren't growing as rapidly as its AI chip business, but it can bundle its products together to lock in its customers and widen its moat across multiple markets.
Why is Broadcom still a great investment?
From fiscal 2025 to fiscal 2028, analysts expect Broadcom's revenue and EPS to grow at CAGRs of 53% and 66%, respectively. Yet it still trades at just 25 times next year's earnings -- making it one of the market's cheapest mega-cap AI stocks relative to its growth rate.
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