BofA: Energy and Financial Sectors Lead in Shareholder Returns Amid AI Arms Race
Alina Collins
BofA's latest report shows tech giants are trapped in an AI capex arms race that is squeezing free cash flow, while energy and financials now top the S&P 500 in total shareholder yield.
Tech is posting big profits — so why are shareholders getting less back?
BofA strategist Savita Subramanian notes that tech earnings look strong on paper, but a significant portion is inflated by investment gains — not spendable cash.
This means → reported profits and actual cash flow have sharply diverged. Earnings ≠ cash in the bank.
Hyperscalers — large cloud platforms like Google, Microsoft, and Amazon — are locked in an AI arms race and cannot cut capex without losing competitive ground.
In plain terms = they are earning more but must funnel most of it back into AI infrastructure, leaving far less for buybacks and dividends.
Who is quietly returning cash to shareholders?
Energy, financials, and materials — the "old economy" sectors — now post the highest total shareholder yield (dividend yield + net buyback yield) across the S&P 500.
This reflects a long-term structural shift: these sectors were starved of capital after the 2008 financial crisis, which forced them into low-leverage, lean operations.
This means → they face no pressure to spend aggressively, so their cash flow goes directly back to shareholders.
Why is consumer discretionary also at the bottom?
Subramanian flags that consumer discretionary — non-essential goods such as luxury, autos, and travel — ranks alongside hyperscalers at the bottom for cash returns.
This means → it is not only tech burning cash. Some consumer companies also lack the free cash flow to return capital at scale.
How long can this gap last?
BofA argues the old-economy return advantage hinges on how long the AI capex cycle runs.
If tech giants keep AI spending elevated — or push it even higher — over the coming years, their free cash flow stays under pressure and shareholders wait longer for payback.
In plain terms = the longer and harder AI burns cash, the wider the return edge for "old-school" sectors like energy and financials.
Content is for reference only, not financial advice.