Tesla and Alphabet stocks fall amid investor concerns over rising AI spending

Shares of Tesla and Alphabet (Google's parent company) fell significantly after reports that both companies plan to further increase spending on AI. Tesla's stock dropped 12%, while Alphabet's fell more than 6%. Both companies reported negative free cash flow for the second quarter. Alphabet raised its capital expenditure forecast for this year to $195–205 billion (previously $180–190 billion) and warned of further increases in AI infrastructure investments in 2027. Tesla reported a 142% increase in investments in the second quarter to $5.79 billion and expects more than $25 billion in capital expenditures this year. Tesla CEO Elon Musk said the investments will yield excellent returns, citing initiatives in semiconductors and robotics. An Alphabet representative explained the increased spending as an acceleration of capacity expansion to meet AI demand. Analyst Quilter Chevet Ben Barringer noted that investors are focused on rising capital expenditures and product release delays, questioning Alphabet's competitive advantage. Meanwhile, Google Cloud revenue grew 82% to $24.8 billion, with the unit's operating margin rising from 20.7% to 35.6%. Tesla's automotive revenue was $20.52 billion, up 23% year-over-year.