Elon Musk (R), CEO of SpaceX, Tesla and
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Actions of Alphabet And Tesla fell in premarket trading Thursday after both companies reported an increase in AI spendingworrying investors worried about the growing costs of the artificial intelligence boom.
Alphabet shares were down about 4%, while Tesla shares fell more than 5.7% in premarket trading. The moves come after shares of Alphabet closed down 1.46% on Wednesday and Tesla closed down 1.3%.
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Alphabet and Tesla share this year.
Both companies reported negative free cash flow for the second quarter on Wednesday. Alphabet increased its investments forecasts for this year were said to be between $195 billion and $205 billion and have warned of higher numbers in 2027. Previous forecasts from Google’s parent company called for investments of between $180 billion and $190 billion.
Tesla, for his part said investments jumped 142% year-on-year in the second quarter to $5.79 billion. The company said it expects more than $25 billion in investments this year.
Management at both companies has sought to allay investors’ fears about spending.
“This is a massive investment year. I’m confident that all the things we invest in will produce incredible returns. Truly, maybe the best investment returns we’ve ever seen,” the Tesla CEO said. Elon Musk said Wednesday during the earnings call.
Musk discussed the company’s future initiatives involving semiconductor production and Optimus, Tesla’s humanoid robot, highlighting where the spending was going. Tesla is “installing the first generation lines for Optimus” and “will start production soon,” the company said in its earnings presentation.
Alphabet’s CEO said the increase in spending “is primarily driven by an acceleration in the provision of capacity to meet growing demand.” The tech giant has argued that it doesn’t have enough computing capacity to meet the demand it’s seeing for AI.
“Investors appear to be focused on the sharp increase in capital spending, alongside weaker margin prospects, while continued delays in Gemini 3.5 Pro and lack of notable product launches have raised questions about whether Alphabet’s investments in AI still translate into a clear competitive advantage,” Ben Barringer, head of technology research at Quilter Cheviot, told CNBC.
The spending figures for both companies were offset by some positives.
There were signs that some of Google’s investments were starting to pay off. Google’s cloud revenue jumped 82% to $24.8 billion, beating forecasts.
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“This is one of the strongest quarters of revenue growth that Alphabet has seen in five years, and Alphabet is a very good barometer for this whole wave of AI,” Alison Porter, portfolio manager at Janus Henderson, told CNBC’s “Squawk Box Europe” on Thursday.
Porter pointed to Google Cloud’s strong revenue growth as well as the division’s operating margin jump to 35.6% in the second quarter from 20.7% for the same period last year as evidence of the company’s strong performance thanks to its investments.
“We think this look is… very encouraging for overall AI investments and also for the returns that these platforms are seeing on that spending,” Porter said.
At Tesla, the company’s core automotive business generated revenue of $20.52 billion, up 23% year-over-year.
— CNBC’s Lora Kolodny and MacKenzie Sigalos contributed to this report.