Alphabet, Tesla Face Investor Scrutiny Over Rising AI Spending
Both Alphabet and Tesla reported better-than-expected revenue, but significant increases in AI-related expenditures overshadowed results, leading to stock declines.
Shares of tech giants Alphabet and Tesla dipped on Wednesday following their quarterly earnings reports, which revealed substantial increases in artificial intelligence spending. Despite both companies exceeding revenue expectations, the rising investments in AI raised investor concerns about future returns.
Both Alphabet and Tesla posted negative free cash flow for the latest quarter. Alphabet forecasts its 2026 capital expenditures to be between $195 billion and $205 billion, up from previous guidance of $180 billion to $190 billion. This positions Alphabet potentially as the largest spender in the tech sector for 2026.
This development could signal a trend for other major tech firms, including Meta, Microsoft, Amazon, and Apple, which are set to report their earnings soon. The AI boom has so far been fueled by significant infrastructure investments, but the rise of open-source models and increasing corporate caution on AI service costs have raised questions about investment profitability.
Mizuho analysts described Alphabet's capital expenditure increase as "broadly anticipated" and highlighted the significant 82% year-over-year growth in cloud services revenue. They anticipate the stock will recover from its current dip.