Shares of Alphabet and Tesla decreased on Thursday following announcements of increased spending on artificial intelligence, which raised concerns among investors about rising costs associated with the AI sector. Tesla's stock fell by 13%, while Alphabet's shares dropped over 7%. This decline followed previous losses, with Alphabet closing down 1.5% and Tesla down 1.3% on Wednesday.
Both companies reported negative free cash flow for the second quarter. Alphabet raised its capital expenditure forecast for the year to between $195 billion and $205 billion, up from a previous estimate of $180 billion to $190 billion. Tesla reported a 142% year-on-year increase in capital expenditure for the second quarter, totaling $5.79 billion, and projected over $25 billion in capital expenditures for the year.
Tesla CEO Elon Musk addressed investor concerns, stating, "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." He highlighted investments in semiconductor production and the Optimus humanoid robot.
Alphabet's CFO noted that the spending increase was mainly due to a need to enhance computing capacity to meet growing AI demand. Ben Barringer, head of technology research at Quilter Cheviot, commented that investors are worried about rising capital expenditures and a weaker margin outlook, alongside delays in product releases.
Despite the concerns, there were positive indicators for both companies. Alphabet's cloud revenue increased by 82% to $24.8 billion, surpassing forecasts, and its operating margin in the cloud division rose to 35.6% from 20.7% year-on-year. Alison Porter, a portfolio manager at Janus Henderson, described this revenue growth as a strong indicator of Alphabet's performance in the AI sector. Tesla's automotive business generated $20.52 billion in revenue, reflecting a 23% year-on-year increase.