Shares of Alphabet and Tesla experienced a drop in premarket trading on Thursday due to both companies announcing plans for increased investment in artificial intelligence, causing concern among investors about the escalating costs associated with the AI surge. Alphabet's stock fell approximately 4%, while Tesla’s shares saw a decline of more than 5%.
In their latest financial reports, both companies disclosed that they faced negative free cash flow for the second quarter. Alphabet has adjusted its capital expenditure outlook for the year to a range of $195 billion to $205 billion, up from a prior estimate of $180 billion to $190 billion, with indications of even higher expenses expected by 2027. On the other hand, Tesla reported a staggering 142% increase in capital expenditures year-over-year in Q2, amounting to $5.79 billion, and anticipates exceeding $25 billion in capex for the year. To alleviate investor concerns surrounding these spending patterns, executives from both companies shared optimistic views. Tesla CEO Elon Musk remarked during the earnings call that "this is a massive capex year" and expressed confidence that their investments would yield exceptional returns, possibly the best in the company's history.
Musk emphasized Tesla's future projects, including advancements in semiconductor manufacturing and the development of Optimus, Tesla's humanoid robot. The company is preparing to launch production lines for Optimus shortly. In a similar vein, Alphabet’s CEO highlighted that their spending increase is largely driven by a need to accelerate capacity in response to rising demand, noting the company’s current inability to meet the burgeoning AI requirements.
Despite the concerns regarding increased spending, there were some positive indicators. Google reported a remarkable 82% surge in cloud revenue, reaching $24.8 billion, surpassing estimates. Meanwhile, Tesla's key automotive sector generated $20.52 billion in revenue, marking a 23% year-on-year growth.
