Tesla falls 15%, Alphabet drops 8% as AI spending concerns mount

Shares of Elon Musk-led Tesla came under heavy selling pressure in Thursday's trade, July 23, plunging by 15% to around $319 apiece as the sell-off intensified after the electric vehicle maker reported weaker-than-expected quarterly earnings, hurt by a sharp rise in capital expenditure.

Alphabet, Google's parent company, also tumbled 8% despite reporting stronger-than-expected quarterly revenue and profit, as investors focused on the company's sharply higher artificial intelligence (AI) spending plans rather than its earnings beat.

As Tesla and Alphabet are among the largest constituents of the S&P 500 and Nasdaq, their sharp declines dragged the broader market lower, with the S&P 500 falling 1.55%.

Tesla shares hit one-year low after earnings miss

Thursday's sell-off dragged Tesla shares to their lowest level since August 2025 and extended the stock's July decline to 24%, putting it on track for its biggest monthly fall since February, when it had dropped 28%.

Although the company reported stronger-than-expected vehicle deliveries during the quarter, profitability came under pressure due to aggressive spending, lower vehicle prices, and rising operating costs.

Tesla's spending on its long-term growth initiatives surged to $5.8 billion during the quarter, marking a 142% increase from a year ago and resulting in the company's first quarterly cash burn in two years.

The company continues to expect a capital expenditure of more than $25 billion this year, with management signalling even higher investments in the years ahead.

Adjusted earnings came in at 33 cents per share, well below Bloomberg analysts' consensus estimate of 51 cents. The company also reported negative free cash flow of $1.09 billion.

Revenue, however, rose to $28.2 billion, beating market expectations. The results followed stronger-than-expected quarterly deliveries of more than 480,000 vehicles.

While Tesla's automotive business continues to drive revenue, newer businesses such as robotaxis and AI-related initiatives are yet to make a meaningful financial contribution.

AI spending overshadows Alphabet's strong quarter

Although Alphabet reported better-than-expected second-quarter revenue and profit, investors appeared more concerned about the company's rapidly rising investment in artificial intelligence.

The Google parent raised its projected 2026 capital expenditure to $205 billion, up from its earlier guidance of $180 billion-$190 billion, while also warning that spending would increase further in 2027.

Alphabet is the first of the "Magnificent Seven" technology companies to report quarterly earnings this season, with Meta Platforms, Microsoft, and Amazon scheduled to announce their results next week. Collectively, the four companies have indicated they could spend as much as $725 billion this year to expand their AI infrastructure.

Chief Executive Officer Sundar Pichai said AI investments helped accelerate Google Cloud's revenue growth to 82% during the quarter. However, investors remain cautious over whether the massive AI spending will generate sufficient returns in terms of productivity, profitability and cash flow.

These concerns have weighed on the broader AI sector in recent weeks, contributing to heightened volatility across global technology stocks.

During the second quarter, the company recorded more than $119 billion in total revenue, up 24% compared to the same period last year.

Its Google Cloud business remained a key growth driver, with revenue surging 82% year-on-year to $24.77 billion, comfortably ahead of analysts' expectations of $22.46 billion. Its net profit tripled to over $112 billion.

(With inputs from Bloomberg)

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