Alphabet and Tesla shares fell as investors reacted to heavy capital spending on artificial intelligence infrastructure.
Alphabet and Tesla saw significant share price declines this week as investors weighed the high costs of artificial intelligence development. Alphabet reported its first negative free cash flow since becoming a public company in 2004, with capital spending reaching $45 billion in the second quarter. While revenue grew 24%, the heavy investment in servers and data centers pushed the company's leftover cash into negative territory. Tesla also reported negative free cash flow of $1.1 billion for the second quarter, marking its first such showing in two years. Despite beating revenue targets, the company's operating margin fell to 1.4% as it entered a major investment cycle, with plans to spend up to $25 billion this year. The market reaction highlights a growing skepticism regarding whether these massive expenditures will generate commensurate returns. While the five largest AI spenders fell an average of 9%, the companies providing the infrastructure—such as memory makers and server builders—saw gains, as the market began to determine the long-term value of the AI build-out.