Massive investment in AI raises market concerns. Alphabet (GOOGL.US) and Tesla, Inc. (TSLA.US) collectively saw their market value evaporate by about $500 billion.

The latest financial reports from Alphabet (GOOGL.US, GOOG.US) and Tesla, Inc. (TSLA.US) both signal further investment in artificial intelligence (AI), but the continuous increase in capital expenditures and cash flow pressure have raised concerns in the market about the return on investment cycle for AI. Both companies saw their stock prices plummet on Thursday, with a combined market value loss of about $500 billion. By the closing bell, Tesla, Inc. plunged by 14.5%, marking its biggest single-day drop since March 2025, with a market value decrease of about $200 billion; Alphabet Inc. Class C, the parent company of Alphabet, fell by 7.1%, leading to a market value loss of about $300 billion. Dragged down by the sentiment in the tech sector, Amazon.com, Inc. (AMZN.US) also dropped by 4.6%, with a market value decrease of about $120 billion. The financial reports released by both companies for the second quarter showed negative free cash flow and a significant increase in capital expenditures. Alphabet raised its expected capital expenditures for 2026 from the previous $180-$190 billion to $195-$205 billion, and expects further increases in 2027. The company stated that the increased capital expenditures are mainly to accelerate the development of AI infrastructure to meet the growing demand for AI computing power, as the current computing capacity is unable to meet the demands brought by the rapid growth of AI business. Tesla, Inc. reported a 142% year-on-year increase in capital expenditures in the second quarter to $5.79 billion, and expects total annual capital expenditures to exceed $25 billion in 2026. The company continues to invest in autonomous driving, AI computing power, semiconductors, and areas such as humanoid robots like Siasun Robot & Automation Optimus, with the first generation production line of Optimus already being installed and set to start production soon. In response to market concerns, the management of both companies have emphasized that large-scale investments will bring long-term returns. Tesla, Inc. CEO Elon Musk stated during the earnings call that this year is an unprecedented year in terms of capital expenditures for the company, and he believes that all current investments will eventually yield rich returns, and may even become the highest return on investment in the company's history. However, the market remains cautious about whether AI investments can quickly profitability. Ben Barringer, head of technology research at Quilter Cheviot, stated that investors are currently more concerned about the rapid growth of capital expenditures and pressure on profit margins. The continued delay in the release of Gemini 3.5 Pro, as well as the lack of breakthrough AI products, has also raised doubts in the market about whether Alphabet's massive AI investments have already formed a clear competitive advantage. BNP Paribas analyst James Picariello pointed out that Tesla, Inc. is advancing its AI strategy with an extremely aggressive pace of capital expenditures, but there is still significant uncertainty in the commercialization progress of the company's AI business, and market valuations have fully reflected optimistic expectations. He reiterated a "sell" rating for Tesla, Inc. stock and maintained a target price of $280. Data shows that Tesla, Inc. is currently valued at 152 times forward earnings, making it not only the most highly valued company among the "Big Seven" in the U.S. market, but also the worst-performing member so far this year. By the end of trading on Thursday, Tesla, Inc. stock had fallen by nearly 30% since 2026. The sharp decline in stock prices has also brought handsome profits to investors shorting Tesla, Inc. According to data from Ihor Dusaniwsky, Managing Director at S3 Partners, the sharp drop in Tesla, Inc. on Thursday is expected to bring about $4.3 billion in single-day paper profits to short sellers, with total paper profits of about $9.08 billion so far this year. Currently, about 3% of Tesla, Inc.'s float shares are being shorted, making it the most shorted stock among the "Big Seven" in the U.S. market, while the second-ranked Meta Platforms (META.US) has a short interest of only about 1.6%. However, the controversy surrounding Tesla, Inc.'s AI strategy is different from other tech giants. For companies like Alphabet and Microsoft Corporation (MSFT.US), the market's concern is that the scale of AI investment is too large and the return cycle is too long; while some Tesla, Inc. investors believe that the company's investments in AI businesses such as Robotaxi and humanoid robots like Siasun Robot & Automation are not sufficient to support its long-term development goals. Additionally, lower-than-expected profit margins in the automotive business have raised concerns in the market about whether the core business of the company can continue to provide financial support for its future AI strategy. Despite the cautious market sentiment, some institutions and retail investors are choosing to counter the trend. Data from Vanda Research shows that Tesla, Inc. was still the stock with the highest net purchase amount by U.S. retail investors on Thursday, with a net purchase of about $42 million during the trading day. Meanwhile, Morningstar analyst Seth Goldstein believes that the current stock price is below the company's intrinsic value, and the long-term growth prospects remain robust. He maintains a fair value target of $450 and believes that this round of stock price decline actually provides a good buying opportunity for long-term investors. On the other hand, Alphabet's financial report still shows some positive signals. Alphabet Inc. Class C's cloud revenue in the second quarter grew by 82% year-on-year to $24.8 billion, exceeding market expectations; the business's operating profit margin also increased from 20.7% in the same period last year to 35.6%. Alison Porter, portfolio manager at Janus Henderson, stated that this is one of the strongest revenue growth quarters for Alphabet in the past five years, and the substantial increase in revenue and profit margin for Alphabet Inc. Class C's cloud business proves that the company's AI investments are starting to yield tangible returns. She believes that this not only helps boost confidence in the overall AI capital expenditure in the market but also reflects that large tech platforms are gradually realizing returns on their AI investments. As for Tesla, Inc., its core automotive business revenue in the second quarter increased by 23% year-on-year to $20.52 billion, but the ongoing investments in AI, autonomous driving, and Siasun Robot & Automation are putting significant pressure on profit margins and cash flow, serving as the main catalyst for the recent stock price drop.