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SpaceX, Tesla and X CEO Elon Musk (R) and Google CEO Sundar Pichai attend the presidential inauguration of Donald Trump at the Rotunda of the US Capitol in Washington, on January 20, 2025. Trump takes office for his second non-consecutive term as the 47th president of the United States. Kevin Lamarque | Afp | Getty Images
Shares of Alphabet and Tesla fell in premarket trading on Thursday after both firms signalled increased AI spending, unnerving investors worried about the mounting costs of the artificial intelligence boom. Alphabet shares were around 4% lower, while Tesla's stock fell over 5.7% in premarket trading. The moves come after Alphabet shares closed 1.46% lower on Wednesday and Tesla closed down 1.3%.
Stock Chart Icon Stock chart icon Alphabet and Tesla shares this year.
Both companies reported negative free cash flow for the second quarter on Wednesday. Alphabet raised its capital expenditure forecast for this year to $195 billion to $205 billion and warned of higher figures in 2027. The Google parent company's previous projection was for capex between $180 billion and $190 billion. Tesla, meanwhile said capex surged 142% year-on-year in the second quarter to $5.79 billion. The company said it expects more than $25 billion in capex this year. Management at both companies looked to calm investor fears over spending. "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," Tesla CEO Elon Musk said on the earnings call on Wednesday.
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Musk talked up the company's future initiatives around semiconductor production and Optimus, Tesla's humanoid robot, as it highlighted 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 spending increase "is primarily due to an acceleration in the delivery of capacity to meet growing demand." The tech giant has maintained that it does not have enough computing capacity to meet the AI demand that it is seeing. "Investors appear to be focusing on the sharp rise in capital expenditure, alongside a weaker margin outlook, while continued delays to Gemini 3.5 Pro and a lack of standout product releases have raised questions about whether Alphabet's AI investments are yet translating into a clear competitive advantage," Ben Barringer, head of technology research at Quilter Cheviot, told CNBC. Spending figures at both companies were offset by some bright spots. There were signs that some of Google's investments were beginning to pay off. Google's cloud revenue jumped 82% to $24.8 billion, beating forecasts.