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Alphabet and Tesla shares plunge on AI spending fears
Alphabet forecast AI spending of up to $205bn this year and reported negative free cash flow of negative $5.9bn for the first time in at least a decade.
Alphabet and Tesla shares fell sharply as investors reacted to mounting AI spending plans and recent financial results. Alphabet, Google's parent company, dropped more than 7%, while Tesla fell 13.5%.
Both companies reported negative free cash flow in their latest results, and Alphabet disclosed plans to keep spending billions more on AI in coming months and years. It was also the first time Google had seen the free cash flow metric turn negative since it became a public company in 2004, according to its past financial records.
Alphabet said its combined quarterly revenue rose to $119.8bn, up 23% year over year, but heavy AI infrastructure spending pushed leftover cash into negative territory. The company reported free cash flow of negative $5.9bn for the quarter, driven by higher capital expenditures tied essentially entirely to AI spending.
Alphabet projected it could spend as much as $205bn on AI this year, an increase of $15bn from an estimate it provided three months earlier. On an analyst call, Chief Financial Officer Anat Ashkanazi said the negative free cash flow reflected growing capital expenditures, with Alphabet spending $45bn in the second quarter, including 60% for servers and 40% for data centers.