Shares of Google and Tesla fell on Thursday as investors remained fearful of the ever-increasing funding focus on artificial intelligence (AI).
Google’s parent company Alphabet saw its share price fall by more than 7%, while Elon Musk’s electric vehicle maker Tesla saw its stock fall by 13.5%.
Both reported negative free cash flow – money saved after paying for operations and investments – in financial results on Wednesday, while also pledging billions more to spend in the coming months and years.
According to its financial records, it was the first time Google had seen its cash metric go negative since it became a public company in 2004.
As major tech companies race to capitalize on a new wave of AI technology, investors are wondering when the financial benefits will be seen.
Alphabet now expects to spend up to $205 billion this year, primarily on AI projects and infrastructure, which is $15 billion more than the spending estimate it gave just three months ago.
Meanwhile, Tesla expects to spend up to $25 billion on unspecified projects this year.
“There are still doubts about the ability of these investments to generate the same level of returns,” said Russ Mould, investment director at AJ Bell.
Alphabet’s combined quarterly revenue reached $119.8 billion, up 23% from the same period last year.
Although Google’s parent company Alphabet has seen growth in its business in recent months, heavy spending on artificial intelligence (AI) infrastructure has pushed its remaining cash into negative territory.
According to the last financial records, the company’s free cash flow fell to negative $5.9bn (£4.3bn) for the first time in at least a decade.
Its stock fell sharply, falling 4% in after-hours trading.
Google Chief Financial Officer Anat Ashkanazi said on a call with financial analysts that the company recorded negative free cash flow due to rising capital expenditures, which were essentially related to AI spending.
He said the company spent $45 billion in the second quarter, with 60% of the cost spent on servers and the remaining 40% on data centers.
Alphabet’s capital spending in the first quarter of this year was $36 billion.
Ashkanazi said on the call that when it comes to AI, “the demand still outweighs that investment”.
“As long as we see these attractive opportunities for investment, we will continue to invest.”
Google Chief Executive Sundar Pichai said that technological changes in AI tools and capabilities still “feel like early innings of change in many areas” and that the company’s plans to generate financial returns on its spending were “disciplined”.
“While I see what you can do with frontier capabilities, there’s still a lot of work to do to translate it into experiences for our users. So this looks like an extraordinary opportunity with extraordinary returns.”
Rachel Winter, partner at wealth management firm Killick & Co., said there was some surprise among investors about how much Google was spending.
“These are huge numbers. The fact that shares fell when the results came out suggests there is some concern about those levels.”
Tesla reported negative free cash flow of $1.1 billion for the second quarter on Wednesday due to its rising investment costs.
According to the company’s financial records, this was the first negative showing of cash left in two years.
Tesla plans to spend $25 billion this year, more than doubling its capital spending in 2025.
Tesla Chief Financial Officer Vaibhav Taneja said Wednesday that Tesla is in “a big investment cycle” and its spending will likely increase further over the next three years.