By Jacob Sonenshine

Oracle and other Big Tech stocks have been getting hit amid concerns about the gobs of money they are spending on artificial intelligence. Less profligate alternatives should benefit.

The Nasdaq Composite has dropped 5.5% in November, led by losses in large-cap tech names like Meta Platforms, Tesla, Oracle, Microsoft, and Palantir Technologies, as well as AI chip makers like Nvidia and Advanced Micro Devices. And the selloff all comes down to cash. Will AI be profitable enough for the so-called hyperscalers to get a return on all the money they are spending -- Meta, Oracle, Microsoft, Alphabet, and Amazon.com will make a combined $500 billion of capital investments next year, according to FactSet -- and will they keep buying chips to run their data centers?

If half a trillion dollars sounds like a large number, it's because it is. The spending is driving up the costs of depreciation and interest expenses -- the costs for Alphabet and Meta to borrow have risen 0.1 and 0.15 percentage point, respectively, while Oracle's costs have risen nearly half a percentage point -- as these companies are now borrowing money to finance the investments.

So much for asset-light -- and that's reducing the return on equity, or net income as a percentage of total net assets, for the big spenders. Analysts now expect ROE for Oracle, Meta, Amazon, Microsoft, and Alphabet to drop a few percentage points over the next couple of years, something the market is starting to reflect in its valuations.

The easiest way for valuations to shift is for investors to sell -- and that's exactly what they have been doing as they shift to companies that aren't bleeding money. Since the end of October, companies returning relatively large amounts of cash to shareholders through dividends and buybacks have seen their stocks outperform those returning less cash, according to 22V Research's Dennis DeBusschere, a sign that they are reallocating to companies that aren't over-investing. These companies are also less volatile and provide a more certain return.

"The underlying theme is a rotation into industries that return a lot of cash," DeBusshere writes.

His list of such stocks include non-tech household names such as General Motors, Ford Motor, GE Aerospace, Tommy Hilfiger owner PVH, Macy's, American Eagle Outfitters, General Mills, Interactive Brokers Group, Invesco, Truist Financial, Comcast, Pfizer, and United Parcel Service.

American Eagle, which has gained 2.5% since the Nasdaq peaked in October, checks all the boxes. The company has returned $276 million in dividends and buybacks this year. Its capital investments are low -- just about $90 million -- and management plans to continue to pay down its $77 million in net debt, which its annual profits easily cover.

Growth should pick up -- analysts are expecting 2% same-store-sales growth in 2026, up from the 0.7% expected this year -- which should help lift profit margins and drive earnings higher.

It's a reminder: It's not how much money you have, but how you use it that matters.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

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November 19, 2025 01:30 ET (06:30 GMT)

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