Alphabet, Tesla stocks plunge on AI spending fears
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- Alphabet shares dropped nearly 7% on Thursday after the company reported negative free cash flow of $5.9bn for Q2 — its first such result since going public in 2004 — driven almost entirely by AI capital expenditures.
- Tesla shares plunged 14.5% on Thursday, posting negative free cash flow of $1.1bn for Q2, the company's first negative showing in two years, according to its financial records.
- Alphabet raised its 2025 capital spending forecast to as much as $205bn, a $15bn increase from its estimate just three months earlier, with CFO Anat Ashkanazi telling analysts that AI demand still outpaces the company's investment.
- Tesla plans to spend up to $25bn this year — more than double its 2025 capital spending — with CFO Vaibhav Taneja saying the company is in "a big investment cycle" likely to increase further over the next three years.
- Alphabet spent $45bn in Q2 alone, split 60% toward servers and 40% toward data centers, even as quarterly revenue hit $119.8bn, up 23% year-over-year.
- Analysts including AJ Bell's Russ Mould and Killik & Co's Rachel Winter flagged a "healthy degree of scepticism" about whether the record AI investments will generate commensurate returns.
Why it matters: Alphabet's capex guidance jumped $15bn to $205bn in just three months, while Tesla's $25bn spending target is more than double its 2025 outlay. Alphabet's negative free cash flow marks its first such result in over two decades as a public company. The market reaction — a 14.5% Tesla drop and 7% Alphabet slide — signals investors now demand near-term evidence that record AI infrastructure spending translates into proportional revenue.
