Tesla and Alphabet shares fall on investor concerns over AI spending growth

Shares of Tesla and Alphabet declined significantly after both companies revealed plans to boost AI-related spending. Tesla shares fell 12% and Alphabet shares dropped over 6% during trading. Both companies reported negative free cash flow for the second quarter. Alphabet raised its 2023 capital expenditure forecast to $195-205 billion from the previous $180-190 billion and warned of further increases in AI infrastructure investments in 2027. Tesla reported a 142% year-over-year increase in investments to $5.79 billion in Q2 and expects over $25 billion in capital expenditures this year. Executives tried to reassure investors: Elon Musk stated that the investments would yield incredible returns and mentioned semiconductor production and humanoid robot mass production. Alphabet cited a need to accelerate capacity expansion to meet growing AI demand. Analysts noted that despite rising costs, some positive indicators emerged: Google Cloud revenue surged 82% to $24.8 billion with operating margin rising from 20.7% to 35.6%, and Tesla's automotive revenue grew 23% to $20.52 billion.