Shares in Google’s parent company Alphabet and Tesla tumbled on Thursday after investors were spooked by the growing sums being poured into artificial intelligence, with both companies reporting negative free cash flow.
Alphabet’s share price fell nearly 7%, while Tesla’s stock slumped 14.5%. The declines followed financial results on Wednesday that revealed Alphabet’s free cash flow had turned negative for the first time since it went public in 2004, at -$5.9bn (£4.3bn).
“Alphabet and Tesla shares fell 7% and 14.5% after AI spending pushed cash flow negative.”
The company now expects to spend as much as $205bn this year, mainly on AI projects and infrastructure – a $15bn increase from an estimate it gave just three months ago. Tesla, meanwhile, expects to spend up to $25bn on unspecified projects.
“There is still a healthy degree of scepticism about the ability of these investments to generate a commensurate level of return,” said Russ Mould, an investment director at AJ Bell.
Despite Alphabet’s combined quarterly revenue hitting $119.8bn, up 23% compared with the same period last year, heavy capital spending on AI pushed its free cash flow into the red. Anat Ashkanazi, Alphabet’s chief financial officer, noted on a call with analysts that the company spent $45bn in the second quarter alone, with 60% going on servers and 40% on data centres.
“The demand still outpaces that investment,” Ashkanazi said. “As long as we see these attractive opportunities to invest, we will continue to invest.”
Sundar Pichai, Alphabet’s chief executive, described the shift to AI tools as “early innings” and said the company’s plans for generating financial returns were “disciplined”.
But with spending already escalating sharply and no clear timeline for returns, the market’s patience appears to be wearing thin.