Technology's Cash Machine: 37 A-Grades and a Median Margin That Should Terrify Every Other Sector

The Sector That Runs Away With Everything

Technology companies are converting 24.2% of every revenue dollar into free cash flow. That's the median — half the sector does better. Out of 46 analyzed companies, 37 earned A-grades. That's 80%. No other sector comes close.

This isn't a rising tide lifting all boats. This is a handful of exceptional cash generators surrounded by a deep bench of very good ones — and then a small group getting obliterated. The gap between NVIDIA's 46.6% margin and Intel's -9.4% isn't just wide. It's a different financial universe.

The Top Tier Isn't Just Software Anymore

NVIDIA leads at 46.6%, Grade A, improving trend. Broadcom sits at 42.1%, also A and improving. These are hardware companies — chips, infrastructure, the physical layer — printing cash like enterprise SaaS used to.

Adobe holds third at 41.4% with a stable trend. Airbnb, somehow, sits at 40.7% and improving. Palantir rounds out the top five at 39.8%, also improving. That's two hardware players, two platform businesses, and one data analytics company. The diversity matters. This isn't one subsector running hot — multiple categories within tech are generating exceptional cash.

The enterprise software names still dominate the A-grade list. Salesforce, Workday, ServiceNow, Palo Alto Networks — they're all here, all above 30%, mostly improving. But what stands out is how many chip makers now sit alongside them. Analog Devices at 38.8%. KLA Corporation at 30.8%. Lam Research at 29.4%. Qualcomm at 28.9%. The semiconductor expansion cycle isn't just driving revenue — it's converting to real cash at rates that rival pure software.

The Trend Breakdown Tells You Where Momentum Lives

Of the 46 companies analyzed, 29 show improving trends. That's 63%. Only 7 are declining. The sector isn't just healthy — it's accelerating for most players.

Look at who's improving: NVIDIA, Broadcom, Palantir, Zoom, Panw, Salesforce, AMD, Shopify, DoorDash, Lyft. AI infrastructure, cloud security, fintech platforms, logistics tech. These aren't legacy names riding old moats. These are companies building or benefiting from the next wave.

The declining names are smaller in number but notable in composition. Coinbase is declining from a 39% margin — still Grade A, but the direction matters when crypto volatility returns. Oracle is declining into negative territory at -0.7%. Tesla is declining at 6.6%. These aren't companies facing temporary headwinds. These are structural questions about capital intensity, market saturation, or business model strain.

Microsoft and Meta Are 'Just' A-Grades Now

Microsoft sits at 25.4%, Grade A, stable trend. Meta is at 22.9%, also A and stable. Apple is at 23.7%, A and improving. Google is at 18.2%, A and stable.

These are the mega-caps — the companies most retail investors think of when they think "big tech." They're all healthy. They're all generating strong cash. But they're not leading the sector anymore. They're in the middle of the A-grade pack.

That's not a criticism. A 25% free cash flow margin is exceptional. But when your sector median is 24.2%, being at 25.4% means you're performing in line with the category — not defining it. The sector has gotten so strong that the companies managing trillion-dollar market caps look merely good by comparison.

The Bottom Is a Disaster, But It's Contained

Four F-grades. Intel at -9.4%, Oracle at -0.7%, Micron at 4.5%, Tesla at 6.6%. Two are improving (Intel and Micron), two are declining (Oracle and Tesla).

Intel's negative margin is the result of massive capital expenditure — they're trying to rebuild domestic chip manufacturing. That's a strategic bet, not operational collapse. The improving trend suggests they're starting to see returns. But the cash drain is real.

Oracle's negative margin is harder to explain away. They're deep into cloud infrastructure build-out, but the conversion to cash isn't happening. A declining trend on a negative margin is a red flag. They're burning cash and not seeing stabilization.

Tesla at 6.6% and declining is the most surprising name here. For years, Tesla's cash generation story was the counter-argument to every criticism. That story is weakening. Price cuts, margin compression, and slower delivery growth are showing up in the cash flow statement. The 6.6% margin would be respectable in automotive or consumer discretionary — but in technology, where the sector median is 24.2%, it earns an F.

Micron is improving from a low base. Memory and storage are cyclical, and they're coming off a trough. The 4.5% margin and F-grade reflect where they've been, not necessarily where they're headed.

Debt Isn't a Sector-Wide Problem

Average debt-to-FCF ratio across the sector: 2.1x. That's low. Most companies here are generating enough cash to pay down their debt in two years if they wanted to. Compare that to utilities (often 8-10x) or industrials (4-6x). Technology companies aren't levered.

That matters because it means the cash flow quality is real. These aren't companies using debt to paper over weak operations. They're generating cash, sitting on balance sheet strength, and funding growth internally. When you see a tech company with a 35% FCF margin and a net cash position, you're looking at a business with options — buybacks, acquisitions, R&D expansion, or just returning cash to shareholders.

What This Means for Investors

The technology sector is the healthiest sector we track. That's not hype — it's what the free cash flow data shows. The median margin is double most other industries. The grade distribution is heavily skewed toward A. The trend breakdown shows broad-based improvement.

But within that strength, there's massive dispersion. The top quartile is generating 35%+ margins. The bottom quartile is sub-15%, with some names in negative territory. This isn't a sector where you can throw a dart and expect quality. You need to know which companies are converting revenue to cash and which are burning it.

The shift toward hardware and infrastructure is real. NVIDIA and Broadcom leading the sector tells you where the capital intensity pays off. The enterprise SaaS names are still strong, but they're no longer the automatic top performers. The mega-caps are healthy but not dominant. And the bottom tier — Intel, Oracle, Tesla — represents real risk, not just temporary weakness.

If you're building a portfolio around cash flow quality, technology gives you more options than any other sector. Just don't assume the brand name guarantees the cash generation. The numbers tell a more specific story.