Alphabet and Tesla Shares Fall Amid Increased AI Spending Concerns

Shares of Alphabet and Tesla fell on Thursday after both companies signaled increased AI spending, unnerving investors worried about the mounting costs of the artificial intelligence boom.

Tesla stock closed 14.5% lower while Alphabet lost 7.1%. Elon Musk's EV maker posted its worst day since March 2025.

Tesla lost about $200 billion in market cap on Thursday, while the Google parent saw about $300 billion wiped out.

Both companies reported negative free cash flow for the second quarter on Wednesday. Alphabet raised its capital expenditure forecast for this year to $195 billion to $205 billion and warned of higher figures in 2027. The Google parent company's previous projection was for capex between $180 billion and $190 billion.

Tesla, meanwhile, said capex surged 142% year on year in the second quarter to $5.79 billion. The company said it expects more than $25 billion in capex this year.

Amazon was also dragged down with the two tech giants, losing 4.6% on Thursday and seeing about $120 billion in value axed from its market cap.

Management at both companies looked to calm investor fears over spending.

"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 on the earnings call Wednesday.

Musk talked up the company's future initiatives around semiconductor production and Optimus, Tesla's humanoid robot, as it highlighted where the spending was going. Tesla is "installing the first-generation lines for Optimus," and will "start production soon," the company said in its earnings presentation.

Alphabet's CFO said the spending increase "is primarily due to an acceleration in the delivery of capacity to meet growing demand." The tech giant has maintained that it does not have enough computing capacity to meet the AI demand that it is seeing.

"Investors appear to be focusing on the sharp rise in capital expenditure, alongside a weaker margin outlook, while continued delays to Gemini 3.5 Pro and a lack of standout product releases have raised questions about whether Alphabet's AI investments are yet translating into a clear competitive advantage," Ben Barringer, head of technology research at Quilter Cheviot, told CNBC.

Spending figures at both companies were offset by some bright spots.

There were signs that some of Google's investments were beginning to pay off. Google's cloud revenue jumped 82% to $24.8 billion, beating forecasts.

"This is one of the strongest revenue growth quarters that Alphabet has had in five years, and Alphabet is a really great barometer for this whole AI wave," Alison Porter, portfolio manager at Janus Henderson, told CNBC's "Squawk Box Europe" on Thursday.

Porter pointed to the strong revenue growth of Google Cloud as well as the jump in the division's operating margin to 35.6% in the second quarter from 20.7% in the same period last year as proof of the company's strong performance as a result of its investments.

"We think this look is ... very encouraging for overall AI capex and also for the returns that these platforms are seeing on that spend," Porter said.

At Tesla, the company's core automotive business brought in $20.52 billion in revenue, up 23% year on year.