By Christine Ji and Philip van Doorn
At a time where some companies are seeing declining free cash flow due to AI spending, these five tech stocks are doing the opposite
Investors looking to hedge against an AI downturn should consider looking at a company’s free cash flow yield.
Announcements of deals with OpenAI have sent shares of chip makers Advanced Micro Devices Inc. (AMD) and Broadcom Inc. (AVGO) soaring, while nuclear-energy stock Oklo Inc. (OKLO) has rallied almost 1,000% in the last year – despite having no revenues – on hopes that nuclear power will help meet the energy needs of artificial-intelligence infrastructure.
In a market trading on future potential instead of current fundamentals, many investors are wondering if the AI trade is overheating. And if AI is indeed becoming a bubble, what can you do to protect your portfolio?
There are still ways to play the AI trade in a less speculative way by focusing on a company’s fundamentals. Ted Mortonson, managing director at Baird, has his eyes on one metric: free cash flow, or the money left over after a company spends on its operations and capital assets.
A company’s free-cash-flow yield – or how much free cash flow it generates divided by its total market capitalization – gives investors a way to compare how much cash is returned for every dollar invested in the stock. While massive AI capital expenditures are seeing free cash flows at Big Tech companies trend downward or turn negative, other areas of the market are seeing the opposite effect.
If demand for AI products fails to live up to current expectations, it’ll be hard to avoid a widespread stock-market decline. Market concentration among the “Magnificent Seven” megacap tech stocks has reached record levels, and the AI theme has boosted valuations across all parts of the economy.
Yet companies with growing free cash flows will be better positioned to weather a potential downturn than those without.
Screening for tech stocks with high free-cash-flow yields
To begin this screen, we started with the 70 components of the S&P 500’s SPX information-technology sector XX:SP500.45. What might surprise you about this sector is that it excludes some of the largest tech-oriented companies such as Meta Platforms Inc. (META) and Alphabet Inc. (GOOGL) (GOOG), both of which are in the communications-services sector XX:SP500.50.
To bring those companies in, we added the 45 components of the Nasdaq-100 Technology Sector index XX:NDXT (a subset of the Nasdaq-100 index NDX) to our initial list. After removing duplicates, this left us with 82 stocks.
We screened for estimated free-cash-flow yields based on current share prices and consensus 2026 estimates for free cash flow per share among analysts polled by LSEG. The estimates are adjusted for the calendar year for companies whose fiscal reporting periods don’t match the calendar. Since consensus 2026 FCF estimates weren’t available for 10 of the companies, we were left with 72 stocks.
Some of these companies pay dividends – and since no management team wants to lower dividend payouts because of the dire effect that doing so can have on a stock’s price, we subtracted the dividend yields from the expected FCF yields for estimated 2026 FCF “headroom.” The idea is that the headroom is cash that the companies are free to use to fund expansion, raise dividends, buy back shares or for other corporate purposes that would hopefully benefit shareholders.
Here are the 20 stocks passing the screen with the highest expected 2026 free-cash-flow headroom:
Name Ticker Forward P/E Estimated 2026 FCF headroom Estimated 2026 FCF yield Dividend yield
PDD Holdings Inc. PDD 11.4 12.59% 12.59% 0.00%
GoDaddy Inc. GDDY 18.4 9.78% 9.78% 0.00%
Akamai Technologies Inc. AKAM 10.4 8.48% 8.48% 0.00%
ON Semiconductor Corp. ON 18.9 8.02% 8.02% 0.00%
Adobe Inc. ADBE 14.1 7.74% 7.74% 0.00%
Cognizant Technology Solutions Corp. CTSH 12.0 6.83% 8.72% 1.89%
Gartner Inc. IT 18.2 6.82% 6.82% 0.00%
First Solar Inc. FSLR 11.0 6.68% 6.68% 0.00%
Dell Technologies Inc. DELL 14.0 6.60% 7.99% 1.39%
GlobalFoundries Inc. GFS 18.2 6.55% 6.55% 0.00%
Gen Digital Inc. GEN 9.7 6.55% 8.44% 1.89%
Zebra Technologies Corp. ZBRA 16.8 6.06% 6.06% 0.00%
Salesforce Inc. CRM 19.7 5.90% 6.58% 0.68%
Qualcomm Inc. QCOM 13.6 5.86% 8.03% 2.17%
F5 Inc. FFIV 17.9 5.84% 5.84% 0.00%
Skyworks Solutions Inc. SWKS 17.4 5.83% 9.64% 3.81%
Western Digital Corp. WDC 17.3 5.32% 5.64% 0.32%
NetApp Inc. NTAP 14.7 5.50% 7.24% 1.74%
Workday Inc. WDAY 22.3 5.20% 5.20% 0.00%
Atlassian Corp. TEAM 31.9 4.87% 4.87% 0.00%
Source: LSEG
(You might need to scroll the table to see all of the data, or flip to a landscape view, depending on which device you are using. Click on the tickers for more information about each stock.)
Read: Tomi Kilgore’s detailed guide to the information available on the MarketWatch quote page
The table includes forward price-to-earnings ratios, which are current stock prices divided by consensus earnings-per-share estimates among analysts polled by FactSet. Most of the stocks among these 20 trade at low valuations compared with forward P/E ratios of 30.5 for the S&P 500 information-technology sector, 27.9 for the Nasdaq-100 and 23 for the full S&P 500.
Out of these 20 names, analysts are especially bullish on five, in particular: Qualcomm Inc. (QCOM), Western Digital Corp. (WDC), Dell Technologies Inc. (DELL), Atlassian Corp. (TEAM) and Salesforce Inc. (CRM)
Several of these names are hardware companies that have benefited greatly from selling the picks and shovels of the AI trade. Storage and memory businesses such as Qualcomm and Western Digital have seen demand for their products shoot up. Western Digital is one of the largest players in enterprise hard disk drives and is gaining pricing power amid this backdrop, Travis Prentice, chief investment officer of the Informed Momentum Company, recently told MarketWatch. As a result, Western Digital’s free-cash-flow yield inflected positive at the end of 2024 and has increased ever since.
Mortonson likes Qualcomm because of its “fabless” business model, which means that it designs its own chips but outsources the manufacturing. “Semiconductor companies that do not own their fabs produce an enormous amount of free cash flow,” Mortonson told MarketWatch. Additionally, Qualcomm’s products will be critical to powering AI devices at the “edge,” such as next-generation wearables, he added.
Dell is another attractive opportunity for investors looking for free cash flow. Bank of America analyst Wamsi Mohan wrote in a note last month that Dell should be able to grow its free cash flow “meaningfully” as it increases profitability on the AI servers it sells and expands its storage business.
Outside of AI hardware, the software sector also presents opportunities for robust free cash flows. Atlassian, which specializes in collaboration tools for developers, is one example. Miller Jump, vice president of equity research at Truist Securities, anticipates that Atlassian will be able to grow its free cash flow at 13.7% annually.
And Salesforce is another pick for Mortonson and BofA analyst Brad Sills. Although the stock has sold off 26% this year on fears of slow AI adoption, the company showed rising momentum with its Agentforce offering at its recent investor day. Salesforce also announced plans to repurchase $7 billion in shares over the next six months. In a note on Thursday, Sills raised the company’s free-cash-flow targets for the 2026 and 2027 fiscal years to $16.2 billion and $18.5 billion – a 2.5% and 3.7% increase, respectively.
Read: Think AI is a bubble? Here’s how to position your stock portfolio.
-Christine Ji -Philip van Doorn
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10-18-25 0800ET
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