Spending on artificial intelligence (AI) could increase the growth prospects of companies like Nvidia, which is currently a holding in the VictoryShares Free Cash Flow Growth ETF (GFLW). The hope is that spending will eventually translate into increased revenue and ultimately, free cash flow (FCF) for both companies.
FCF is the remaining capital left after subtracting expenses from operating revenue. This excess capital can be used to reinvest into the company, offer dividends, or buy back stock to create shareholder value. Over time, increased spending may benefit growth-oriented ETFs, such as GFLW, which provides exposure to companies with high FCF/Invested Capital.
FCF divided by invested capital, also called FCF return on invested capital, measures how efficiently a company turns the capital invested in its business into real cash flow.
Nvidia is the bellwether of the ongoing big tech arms race, which has a business model that offers chips that meet AI’s heavy processing demands. Currently, in GFLW, Nvidia is allocated at 3.13%, as of March 3, 2026.
How CapEx Affects FCF
Big tech companies have been bolstering their capital expenditures (CapEx) on AI as the technology continues to proliferate in consumer and business usage. While revenue prospects remain compelling, the timing and magnitude of FCF tracking require careful evaluation.
VictoryShares and Solutions client portfolio manager, Michael Mack, noted the effects of CapEx spending and the latency effect1 in CapEx affecting the bottom line. Rather than seeing the effects of heavy spending up front, they’re spread out over 5-10 years. This, in turn, leads to earnings that may appear higher in the short term. “At the end of the day, CapEx is always a cost,” Mack said. “And the more you spend, the more of a headwind it can be to your earnings growth going forward.”
Thus, Mack noted the importance of using FCF as a means to evaluate companies. Because it looks at the remaining cash left after expenditures, it gives investors a much clearer metric to reference when assessing how well-capitalized companies are for future growth.
Selective FCF Investing
Getting exposure to companies with the highest growth prospects doesn’t just involve selecting names in the Magnificent Seven or those with lofty stock price gains that may not align with their underlying fundamentals. Applying an objective metric, such as FCF, can help investors cut through the noise of market headlines. Ultimately, this requires a highly selective index. GFLW achieves that by tracking the Victory Free Cash Flow Growth Index (the “Index”).
The Index employs a discerning screening methodology that selects constituents based on their FCF relative to return on invested capital. The Index starts with 1,000 companies in the VettaFi 1000 US Large Cap Index, excluding sectors such as financials and real estate (REITs). It then whittles the starting field down to 400 using a rules-based methodology that screens for positive FCF growth over the last five years.
Of the 400, 150 securities are then selected based on profitability metrics, specifically those exhibiting the highest FCF return on invested capital. A growth filter is then applied to screen out the slowest-growing companies. In the end, 100 stocks remain, based on their strong free cash flow characteristics. One of those characteristics is a company’s favorable forward 12-month FCF, which offers a glimpse of its future growth prospects rather than relying on 12-month trailing data.
The Index is reconstituted and rebalanced quarterly, excluding companies with negative FCF. In the end, investors are left with companies that exhibit strong, sustainable cash generation, which may enhance portfolio resilience while positioning clients for potential long-term growth.
For more news, information, and analysis, visit the Free Cash Flow Content Hub.
VettaFi LLC (“VettaFi”) is the index provider for GFLW, for which it receives an index licensing fee. However, GFLW is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of GFLW.
1/ Latency effect refers to the time delay between when capital expenditures are incurred and when their full cost is reflected in a company’s earnings, typically spread over multiple years through depreciation.
| GFLW’s Top Ten Holdings as of 12/31/2025 | Weighting (%) |
| NVIDIA Corporation | 3.14 |
| Broadcom Inc. | 3.10 |
| Uber Technologies, Inc. | 2.97 |
| Lam Research Corporation | 2.86 |
| Royalty Pharma Plc Class A | 2.72 |
| Cardinal Health, Inc. | 2.70 |
| GE Vernova Inc. | 2.62 |
| McKesson Corporation | 2.57 |
| Amphenol Corporation Class A | 2.53 |
| KLA Corporation | 2.51 |
Holdings are subject to change and should not be construed as investment advice or a recommendation to buy, sell, or hold any security.
Disclosure Information
Carefully consider a fund’s investment objectives, risks, charges, and expenses before investing. To obtain a prospectus or summary prospectus containing this and other important information, visit http://www.vcm.com/prospectus. Read it carefully before investing.
All investing involves risk, including the potential loss of principal. The market prices of securities may go up or down, sometimes rapidly or unpredictably, due to general market conditions, such as real or perceived adverse economic, political, or regulatory conditions, recessions, inflation, or changes in interest or currency rates. The Fund has the same risks as the underlying securities traded on the exchange throughout the day. ETFs may trade at a premium or discount to their net asset value. Investing in companies with high free cash flows could lead to underperformance when such investments are unpopular or during periods of industry disruptions. The fund could also be affected by company-specific factors that could jeopardize the generation of free cash flow. Index Funds invest in securities included in, or representative of securities included in, the Index, regardless of their investment merits. The performance of the Fund may diverge from that of the Index. Large shareholders, including other funds advised by the Adviser, may own a substantial amount of the Fund’s shares. The actions of large shareholders, including large inflows or outflows of cash, may adversely affect other shareholders, including potentially increasing capital gains. Investments concentrated in an industry or group of industries may face more risks and exhibit higher volatility than investments that are more broadly diversified over industries or sectors. Investments in companies in the industrials sector, including producers of durable goods and companies that process raw materials, may be adversely affected by changes in supply and demand for products and services, governmental regulation and changes in spending policies, world events and economic conditions. Derivatives may not work as intended and may result in losses. The value of your investment is also subject to geopolitical risks such as wars, terrorism, trade disputes, environmental disasters, and public health crises; the risk of technology malfunctions or disruptions; and the responses to such events by governments and/or individual companies.
The Victory Free Cash Flow Growth Index focuses on high quality profitable companies that display a positive free cash flow trend. It selects larger cap companies with the highest free cash flow relative to invested capital that also exhibit higher growth.
You cannot invest directly in an index.
VictoryShares ETFs distributed by Victory Capital Services, Inc. (VCS). VCS is not affiliated with VettaFi.
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