It’s amazing how the free cash flow line has meant wildly different things for Apple (AAPL) and Oracle (ORCL) investors this year.
Call it an Investing 101 reminder: Cash is king.
Quick insight: With tech investors laser-focused on capex, free cash flow has emerged as a major driver of share prices this year.
The latest example: Alphabet (GOOGL) reported its first negative free cash flow quarter, and the stock was hammered last week after its earnings. Free cash flow could remain negative for Alphabet in the near-term, based on guidance from its earnings call.
As for Apple, it has generated about $129 billion in trailing 12-month free cash flow. On the other hand, Oracle has seen a $24 billion outflow. It’s not that Apple isn’t investing in AI, but Oracle’s business model requires it to take bigger financial swings. In this case, those swings are being funded by new debt.
Zoom in: Oracle shares are now down 52% since June 2, according to Yahoo Finance AlphaSpace data. This brings the year-to-date slide in Oracle’s stock price to 40% versus a 8% gain for the S&P 500 (^GSPC).
AlphaSpace data shows Oracle’s stock is trading at its lowest forward price-to-earnings ratio in more than four years at 14.2 times. The current forward P/E ratio for the S&P 500 is about 20 times.
The story at Apple is the opposite.
Apple’s impressive run this year on the stock charts has pushed up its forward P/E to 35 times, despite the company waving goodbye to longtime CEO Tim Cook and largely staying out of the AI discussion.
Shares have gained a solid 23% this year.
Bottom line: Don’t expect the fortunes of these two tech behemoths to change anytime soon. Apple is expected to remain free cash flow positive for the foreseeable future, whereas Oracle is showing no indication it’s willing to cut back on capex to appease uneasy shareholders.
Brian Sozzi is Yahoo Finance’s Executive Editor, host of the ‘Power Players With Brian Sozzi’ podcast and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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