Tesla and Alphabet slide premarket as AI spending worries investors

Alphabet and Tesla shares declined in premarket trading Thursday after both companies reported negative second-quarter free cash flow and signaled heavier spending tied to artificial intelligence. CNBC reported that Alphabet was about 4% lower before the open, while Tesla fell more than 5%.

The moves showed investor concern over the scale of capital commitments required to build AI capacity, even as both companies reported growth in key businesses. Capital expenditure, or capex, is cash used to buy long-lived assets such as data center infrastructure, manufacturing equipment or production lines. It can support future revenue, but it also reduces near-term cash generation when spending rises faster than operating inflows.

Alphabet lifted its 2026 capital expenditure outlook to a range of $195 billion to $205 billion, CNBC reported. The Google parent had previously guided for $180 billion to $190 billion. The company also warned that spending would be higher in 2027.

Alphabet Chief Executive Sundar Pichai said the increase “is primarily due to an acceleration in the delivery of capacity to meet growing demand,” according to CNBC. The company has said it lacks enough computing capacity to meet the AI demand it is seeing.

Tesla also reported a sharp increase in investment spending. CNBC reported that the electric-vehicle maker’s capital expenditure rose 142% from a year earlier to $5.79 billion in the second quarter. Tesla said it expects more than $25 billion in capex this year.

On Tesla’s earnings call Wednesday, Chief Executive Elon Musk defended the spending plans. “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,” Musk said, according to CNBC.

Tesla pointed to several areas absorbing investment, including robotics and semiconductor production. In its earnings presentation, the company said it is “installing the first-generation lines for Optimus” and will “start production soon,” referring to its humanoid robot project.

The spending updates outweighed some stronger operating figures reported by the companies. CNBC said Google’s cloud revenue rose 82% year on year to $24.8 billion in the second quarter, above forecasts. Cloud growth is closely watched because large AI workloads require computing infrastructure, storage and related services.

At Tesla, revenue from the core automotive business reached $20.52 billion, up 23% from a year earlier, CNBC reported. The company’s broader investment plan extends beyond vehicle production into areas such as robotics and chips, raising the importance of execution on projects that may take time to contribute meaningfully to cash flow.

The premarket reaction placed both companies within a broader debate over AI economics. Investors have rewarded firms that show demand for AI products and services, but the same buildout can pressure free cash flow when companies accelerate infrastructure spending. For Alphabet and Tesla, Thursday’s trading indicated that markets were weighing current cash costs against management’s claims of future returns.

This story draws on original reporting from CNBC.