Shares in Google and Tesla plunged on Thursday as investors reacted with alarm to the enormous sums being poured into artificial intelligence, with Alphabet’s free cash flow turning negative for the first time since it became a public company in 2004.
Alphabet’s share price dropped nearly 7%, while Tesla fell 14.5%. Both companies reported negative free cash flow in their latest financial results on Wednesday, alongside promises to spend billions more. Alphabet now expects to spend as much as $205bn this year, mainly on AI projects and infrastructure — a $15bn increase from a previous estimate three months ago. Tesla expects to spend up to $25bn on unspecified projects.
“Google and Tesla shares fell sharply as AI spending pushed Alphabet's free cash flow negative for first time since 2004.”
“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.
Alphabet’s quarterly revenue rose 23% to $119.8bn, but heavy spending pushed free cash flow to negative $5.9bn (£4.3bn) for the first time in at least a decade. Its stock fell 4% in after-hours trading before the larger drop on Thursday.
Anat Ashkanazi, Google’s chief financial officer, said the company spent $45bn in the second quarter, with 60% going to servers and 40% to data centres. She said that when it comes to AI, “the demand still outpaces that investment” and “as long as we see these attractive opportunities to invest, we will continue to invest.”
Sundar Pichai, Google’s chief executive, described the AI shift as “early innings” and said the company’s plans around generating financial returns were “disciplined”. “What I see with what you can do with frontier capabilities, there is still a lot of work left to do to translate that into experiences for our users,” he said.
The sell-off underscores a growing tension between tech giants’ aggressive AI spending and investors’ patience for returns. With Alphabet alone planning record capital expenditure, the question of when the billions will translate into profits remains unanswered.