Key facts
- Alphabet reported revenue of $119.8bn, surpassing expectations.
- Alphabet increased its capital expenditure forecast to $195bn-$205bn for AI infrastructure.
- Tesla plans to spend over $25bn this year on AI and robotics.
- Alphabet's Gemini app has 950 million monthly active users.
- Tesla's capital expenditure increased by 142% year-on-year, leading to negative free cash flow.
Alphabet and Tesla, two of Wall Street's leading tech companies, reported strong earnings on Wednesday. However, both companies saw their shares decline in after-hours trading due to significant planned investments in artificial intelligence infrastructure.
Alphabet, Google's parent company, announced revenue of $119.8bn, exceeding analyst expectations. This performance was bolstered by an 82% increase in Google Cloud revenue. The company also revised its full-year capital expenditure forecast upwards, projecting between $195bn and $205bn, an increase from its previous guidance of $180bn to $190bn. This adjustment reflects a strategy to build more AI computing capacity amid what CFO Anat Ashkenazi described as a "supply-constrained environment" with "very strong demand" from both external clients and internal business units. Alphabet also reported that its Gemini app has garnered 950 million monthly active users, underscoring its continued investment in AI models to compete with rivals like OpenAI and Anthropic.
Ben Barringer, head of technology research at Quilter Cheviot, described Alphabet's results as "undeniably impressive" but highlighted the substantial capital expenditure increase, emphasizing the capital-intensive nature of the AI race.
Tesla also faced investor scrutiny after reaffirming its intention to invest over $25bn this year in AI infrastructure, robotaxis, and its Optimus humanoid robot program. While the electric vehicle maker reported higher revenue, its free cash flow turned negative for the quarter, coinciding with a 142% year-on-year jump in capital expenditure. CEO Elon Musk defended the aggressive spending, urging investors to support investing "as fast as we can spend" to expand manufacturing for next-generation AI products.
Lale Akoner, global market strategist at eToro, characterized Alphabet and Tesla as representing "two very different stages of the AI investment cycle," with Alphabet showing early returns while Tesla requires more investor patience. AJ Bell investment director Russ Mould noted that Alphabet's cloud growth was overshadowed by its substantial AI investment plans, a common market concern as AI spending escalates.
These earnings reports precede upcoming results from other major tech firms, including Microsoft, Meta, Amazon, and Apple, with investors anticipated to closely monitor their AI spending strategies and the market's reaction.