Reading a tech giant's spending bill: cash flow after capex

When a company says it "made" money, that usually refers to net income, an accounting figure. Investors who want to know how much cash a business actually has left often look somewhere else: the cash flow statement, and in particular what's left after capital spending.

Three terms, in plain language

• Operating cash flow is the cash the business generated from its day-to-day operations during the period: money collected from customers minus cash paid for salaries, suppliers, taxes and interest.
• Capital expenditures (capex) is cash spent on long-lived assets such as data centres, servers, chips, warehouses and land. On the cash flow statement it often appears as "purchases of property and equipment."
• Free cash flow is, in its simplest form, the first minus the second.

Free cash flow is what's available for buybacks, dividends, acquisitions or paying down debt without borrowing more.

Why the AI build-out made this number important

The largest technology companies are spending heavily on AI infrastructure, mostly data centres and chips. That spending shows up as capex. When capex grows faster than operating cash flow, free cash flow shrinks, and in some quarters it can turn negative. A company in that position has to fund the gap with cash on hand, new debt or fewer buybacks.

That's the idea behind the Money, Modeled video on Big Tech's spending bill: line up each company's operating cash flow against its capex and look at what's left.

Three traps when reading these numbers

1. Definitions differ

"Free cash flow" isn't a standardized accounting line. Companies publish their own versions, and some include items such as principal payments on finance leases. A simple "operating cash flow minus capex" calculation can differ from the figure a company reports. Always check which definition you're using, and use the same one for every company you compare.

2. One quarter can swing

Capex depends on when equipment is delivered and paid for. A large batch of servers arriving in one quarter can push that quarter's free cash flow sharply lower, then the next quarter looks better. Looking at a trailing twelve months or a nine-month comparison smooths that out.

3. Spending today is meant to earn later

Negative free cash flow during a build-out isn't automatically bad. The question is whether the assets will generate enough future revenue and cash to justify the cost. Signals to watch include cloud revenue growth and contracted backlog, the value of signed contracts not yet recognized as revenue.

Where to find the numbers yourself

Every US-listed company files quarterly (10-Q) and annual (10-K) reports with the SEC, available free on EDGAR. Open the "Consolidated Statements of Cash Flows," find "Net cash provided by operating activities" and "Purchases of property and equipment," and subtract. Five minutes per company gives you the same raw view the analysts start from.

For the side-by-side numbers, read Big Tech's $2.2 billion-a-day spending bill or watch the full breakdown on YouTube.

Disclosure: I own shares of Alphabet (GOOGL), Amazon (AMZN), Meta (META), Microsoft (MSFT) and Nvidia (NVDA). Education only, not financial or investment advice, and not a recommendation to buy or sell any security.