Shares of Alphabet and Tesla dropped during after-hours trading on Wednesday following their second-quarter earnings reports, which showed negative free cash flow due to aggressive artificial intelligence spending despite better-than-expected revenue numbers.
The tech selloff saw Tesla stock decline 4% while Alphabet dropped over 3%, signaling potential concern among Wall Street investors as tech megacaps kick off earnings season amid rising infrastructure costs across the industry.
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Alphabet's AI Investment Surge
Alphabet raised its full-year capital expenditure forecast to between $195 billion and $205 billion, warning of even higher spending in 2027.
The company's free cash flow sank to negative $5.9 billion for the quarter after generating nearly $25 billion a year prior, driven heavily by $44.9 billion spent mostly on AI technical infrastructure.
"We expect the free cash flow will remain under pressure, driven by our investments in technical infrastructure, which enables us to capitalize on the AI opportunity and continue to drive attractive returns," said Anat Ashkenazi, CFO at Alphabet.
Despite the capex surge, Google Cloud revenue spiked 82% year-over-year, beating analyst estimates as usage of its Gemini model accelerated and cloud margins expanded.
Meanwhile, Tesla reaffirmed its plan for over $25 billion in annual capex, representing a 200% year-over-year jump.
In the second quarter alone, Tesla's spending leaped 142% to $5.79 billion to fund self-driving tech, Cybercab retooling, Optimus humanoid robots, and a Texas chip factory.
"We should be spending on capex as fast as we can spend, as fast as we can without it being too wasteful," said Elon Musk, CEO at Tesla and SpaceX.
