Shares of Google and Tesla plunged on Thursday, with Alphabet dropping more than 7% and Tesla falling 13.5%, as investors recoiled at the ever-increasing sums being poured into artificial intelligence. The sell-off came after both companies reported negative free cash flow in their latest financial results, alongside promises to spend billions more in the months ahead.
Alphabet, Google's parent company, posted negative free cash flow of $5.9bn (£4.3bn) for the first time since it went public in 2004. The company now expects to spend as much as $205bn this year, mainly on AI projects and infrastructure – a $15bn increase from the estimate it gave just three months ago. Tesla, meanwhile, plans to spend up to $25bn on unspecified projects this year.
“Google and Tesla shares plummet as AI spending pushes Alphabet's 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.
Despite the spending, Alphabet's quarterly revenue hit $119.8bn, up 23% year-on-year. But heavy capital expenditure on AI pushed cash flow into the red. In after-hours trading, Alphabet's stock fell a further 4%.
Anat Ashkanazi, Google's chief financial officer, told analysts that the company spent $45bn in the second quarter, with 60% of that going to servers and 40% to data centres. She said that when it comes to AI, "the demand still outpaces that investment. As long as we see these attractive opportunities to invest, we will continue to invest."
Sundar Pichai, Google's chief executive, described the shift to AI tools as "early innings" and said the company's approach to generating financial returns was "disciplined". Yet with spending accelerating and cash flow turning negative, investors are left wondering when the promised returns will materialise.