Tesla and Alphabet Shares Decline on AI Spending Fears

Both Tesla and Alphabet face declining shares as investor concerns mount over increased spending on artificial intelligence. Negative cash flow reported.

Tesla and Alphabet saw their shares tumble during premarket trading, driven by investor anxieties regarding escalated spending in artificial intelligence.

Both firms disclosed negative free cash flow for the second quarter on Wednesday. Alphabet revised its capital expenditure forecast for the year, now estimating between $195 billion and $205 billion, up from its prior estimate of $180 billion to $190 billion.

Tesla reported a staggering 142% year-on-year increase in capital expenditure in the same quarter, reaching $5.79 billion, and projected over $25 billion in spending for the year.

Efforts to placate anxious investors came from executives at both companies. “This is a massive capex year. I’m confident that all the things that we’re investing in will yield incredible returns. Really, maybe the best capex returns that we’ve ever seen,” stated Tesla’s CEO Elon Musk during the earnings call.

Musk elaborated on upcoming initiatives, which include the production of semiconductors and the development of Tesla’s humanoid robot, Optimus. The company noted that it is “installing the first-generation lines for Optimus,” with production set to commence shortly.

CEO of Alphabet also addressed the increase, asserting that it is largely due to the urgent demand for computing capacity in AI. He remarked on the company’s struggles to keep pace with growing AI demands.

Analysts reflected on the situation, with Ben Barringer, a technology research head at Quilter Cheviot, noting, “Investors appear to be focusing on the sharp rise in capital expenditure, alongside a weaker margin outlook, while continued delays to Gemini 3.5 Pro and a lack of standout product releases have raised questions about whether Alphabet’s AI investments are yet translating into a clear competitive advantage.”

Despite the adverse figures, there were signs of recovery for both companies. Alphabet’s cloud revenue surged by 82%, amounting to $24.8 billion, significantly exceeding expectations.

Alison Porter, a portfolio manager at Janus Henderson, characterized this quarter as one of the strongest for revenue growth at Alphabet in the last five years, highlighting the company’s role as a crucial indicator in the ongoing AI revolution.

Porter pointed to the impressive growth within Google Cloud and noted an increase in the division’s operating margin to 35.6% in the current quarter compared to 20.7% last year, suggesting robust performance linked to their investments.

“We think this look is … very encouraging for overall AI capex and also for the returns that these platforms are seeing on that spend,” Porter stated.

For Tesla, the automotive segment generated $20.52 billion in revenue, marking a 23% increase year-on-year.