CNBC- Tesla and Alphabet stocks fell sharply after both companies reported negative free cash flow in Q2.
- Investor concerns over rising AI capital expenditure have emerged, contributing to the stock declines.
- Alphabet raised its capital expenditure forecast to $195B–$205B for the year, with higher figures expected in 2027.
- Tesla's capital expenditure surged 142% year-on-year to $5.79B in Q2, with more than $25B expected for the year.
- Tesla CEO Elon Musk called it a 'massive capex year' and expressed confidence in the returns.
- Tesla's spending is directed towards semiconductor production and its Optimus humanoid robot, with first-generation lines being installed.
- Alphabet's CFO attributed the spending increase to 'accelerating capacity delivery to meet growing demand'.
- Analysts noted investors are focusing on rising capex and weaker margin outlook, questioning whether Alphabet's AI investments translate into a competitive advantage.
- Despite spending concerns, Google Cloud revenue jumped 82% to $24.8B, and Tesla automotive revenue rose 23% to $20.52B.
Shares of Tesla fell 14% and Alphabet dropped over 6% as investor concerns mounted over rising capital expenditures and negative cash flow reports. Both companies reported negative free cash flow for the second quarter, prompting worries about their financial health.12345
Alphabet has raised its capital expenditure forecast for the year to between $195 billion and $205 billion, up from a previous estimate of $180 billion to $190 billion. The company's CFO noted that this spending increase is due to an acceleration in capacity delivery to meet growing demand.
Tesla, on the other hand, is investing heavily in its future initiatives, including semiconductor production and the Optimus humanoid robot. CEO Elon Musk stated, "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," during the earnings call.910
Despite the concerns, there are signs of growth. Google's cloud revenue surged 82% to $24.8 billion, exceeding forecasts, while Tesla's core automotive business generated $20.52 billion in revenue, up 23% year on year. However, analysts like Ben Barringer from Quilter Cheviot caution that "investors appear to be focusing on the sharp rise in capital expenditure, alongside a weaker margin outlook", raising questions about the effectiveness of Alphabet's AI investments.12
“Google Cloud revenue jumped 82% to $24.8B, beating forecasts, even as Alphabet raised its capital expenditure forecast to $195B–$205B. Separately, Tesla's capex surged 142% to $5.79B in Q2, with CEO Elon Musk calling it a 'massive capex year'.”
