AI spending overshadows Alphabet and Tesla earnings
Wall Street’s biggest tech companies delivered another round of strong earnings on Wednesday, but the primary focus for investors is the growing cost of the artificial intelligence race.
Alphabet and Tesla beat revenue expectations, yet their shares fell in after-hours trading after both companies signalled another year of heavy spending on AI infrastructure.
Google-owner Alphabet reported revenue of $119.8bn (£89.6bn), ahead of expectations, helped by an 82 per cent surge in Google Cloud revenue.
The company also raised its full-year capital expenditure forecast to between $195bn and $205bn from previous guidance of $180bn to $190bn as it builds more AI computing capacity.
Chief financial officer Anat Ashkenazi claimed the higher spending reflected an “acceleration in the delivery of capacity” as demand continued to outstrip supply.
“We’re still in a supply-constrained environment,” she said. “We are seeing very strong demand both from external cloud customers as well as across the business.”
Alphabet said its Gemini app now has 950m monthly active users as it continues investing in new AI models to compete with rivals including OpenAI and Anthropic.
Ben Barringer, head of technology research at Quilter Cheviot, called the results “undeniably impressive”.
“Management increased capital expenditure guidance by a further $15bn to a range of $195bn to $205bn, underlining just how capital-intensive the AI race has become,” he added.
Tesla keeps spending
Tesla also came under pressure after reiterating plans to spend more than $25bn this year on AI infrastructure, robotaxis and its Optimus humanoid robot programme.
The electric car maker reported stronger revenue but free cash flow turned negative during the quarter as capital expenditure jumped 142 per cent year-on-year.
Chief executive Elon Musk defended the spending, telling investors Tesla should invest “as fast as we can spend” as it expands manufacturing capacity for its next generation of AI products.
Lale Akoner, global market strategist at eToro, said Alphabet and Tesla exemplified “two very different stages of the AI investment cycle”.
“Alphabet is spending heavily, but investors can already see some return,” she said. “Tesla is asking for more patience.”
AJ Bell investment director Russ Mould said Alphabet’s cloud growth had been overshadowed by the size of its AI investment plans.
“There’s a familiar gripe for the market as AI spending creeps higher and that overshadowed continued growth throughout the business,” he said.
The results come ahead of earnings next week from Microsoft, Meta, Amazon and Apple, with investors expected to closely watch whether further spending on AI infrastructure continues to dominate the market reaction.