This article is featured in the Q4 2025 Future Strategist newsletter, you can read the rest of the newsletter here.
In 2022, Meta’s shares fell 65%, underperforming indices by a significant amount. Over the last 10 years, Meta shares have only recorded a down year twice – 2018 being the other one. What did these two years have in common? In both cases, free cash flow (FCF) for the company, calculated as operating cash flows less fixed asset investment, fell. FCF fell by about 50% from $39.1 billion in 2021 to $19.3 billion in 2022. In 2018, shares declined 26%, with FCF falling 12%. FCF was set to decline in 2025 and to fall away more sharply in 2026 – which should be of concern.
OpenAI has become the poster child of optimism ever since it launched ChatGPT on the world in late 2022. At that time, the company was reported to have a market value of about $20 billion and minimal revenues. In just three years, revenues have accelerated from about $1 billion in 2023 to $13 billion in 2025, exiting the year at an annualised rate of $20 billion according to various press reports. At the same time, the company is reported to be trying to raise $100 billion of additional funding at a valuation of $830 billion. In just three years, the market has created a near $1 trillion company that has fast growing revenues but is losing an increasing amount of money year by year.
The Economist, using press sources and Pitchbook, estimates that OpenAI will lose about $10 billion in 2025, with losses increasing every year through 2029 before becoming profitable in 2030. The peak loss year will be 2028 at over $40 billion, and cumulative losses in the period will exceed $100 billion.
Both these examples represent investment opportunities in the biggest theme we have possibly ever seen – AI. It has been the biggest thematic driver for equities over the last two years – substantial amounts of freely available capital from the biggest companies in the world together with flows of abundant cash from many other sources have fuelled a faster growing fire of optimism about what AI will do for the world as well as the returns available for those companies that can harness it.
The problem is that fundamental investing is grounded in the value of the future cash flows a company can generate. Speculators and commentators have poured over the AI battlefield with views abounding but little in terms of a fundamental roadmap for valuation. We believe this changes in 2026.
Why did Meta fall so much in 2022? It was because cash flows dropped off sharply, thus changing the profile of expected returns and, more importantly, the timing of those returns. This matters. No one knows exactly how revenues will be generated from AI in the future or to which companies the cash flow and value will accrue – everyone has a view and it feels like a big game of Chinese Whispers. What we do know with certainty now is that the investment extravaganza is depressing current cash flows which is a red flag for valuation.
We believe those companies that compromise their cash flows for the nirvana of artificial general intelligence and future cash flow potential will be penalised. In simple terms, $100 earned in five years is worth only $60 today using a 10% discount rate. Giving up significant cash flow today to invest in an uncertain future must carry a valuation discount.
The table below highlights just how much is being invested in ‘the future’. It shows the biggest investors in AI infrastructure and the impact on cash flows and cash flow multiples that is having.
Source: Liontrust and Bloomberg, as at January 2026. FCF = Free Cash Flow defined as operating profit minus capital expenditure. Past performance does not predict future returns.
Most striking from this list is Oracle, which is investing so heavily in AI infrastructure that its market capitalisation to free cash flow ratio has moved from a healthy 16.1x in 2021 to negative 40x expected for next year. It has consistently generated strong cash flows for years but has chosen to compromise cash flow today for the hope of greater returns in the future. Why, as an investor, should I pay up for that?
Among mega caps, the multiples of free cash flow that investors are expected to pay is also rising steeply as capex spending accelerates. The biggest shift comes from Meta rising from 23.6x free cash flow in 2021 to a nosebleed 70x forecast for 2026.
We believe the sacrifice of cash flows today for the hope of more in the future will define 2026. Whatever the view on AI, an investor should pay less for the higher degree of uncertainty. For the first time, the market has a fundamental marker for valuation and this will likely lead to another year of significant polarisation of returns among the largest companies in the world and, quite possibly, a clear fundamental reason for them to lag the broader market too.
KEY RISKS
Past performance does not predict future returns. You may get back less than you originally invested.
We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.
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DISCLAIMER
This material is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.
It should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets.
This information and analysis is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
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Mark Hawtin
Mark Hawtin is head of the Global Equities team. Mark joined Liontrust in 2024 from GAM, where he was an Investment Director running global long-only and long/short funds investing in the disruptive growth & technology sectors. Before joining GAM in 2008 he was a partner and portfolio manager with Marshall Wace Asset Management for eight years, managing one of Europe’s largest technology, media and telecoms hedge funds.
