Google and Tesla Are Burning Cash on AI. Wall Street Is Starting to Ask Why.

Key points

• Alphabet raised its 2025 capital spending forecast to between $195 billion and $205 billion, up from a prior range of $180 billion to $190 billion.
• Tesla's free cash flow turned negative in Q2 2025, running a deficit of $1.1 billion after generating $1.44 billion in the previous quarter.
• Alphabet's free cash flow fell to negative $5.9 billion in Q2, compared with nearly $25 billion a year earlier.
• Alphabet cloud revenue grew 82% year-on-year, well above analyst expectations.
• Meta, Microsoft, Amazon and Apple are all scheduled to report quarterly results in the week following these announcements.

Two of the biggest names in tech spent their way to a stock selloff this week. Google's parent company Alphabet and electric-vehicle maker Tesla both beat revenue forecasts for the second quarter of 2025, then saw their shares slide after markets closed. Alphabet dropped more than 3%. Tesla fell 4%. The reason, in both cases, was money going out the door faster than investors expected.

Capex, short for capital expenditure, is the money companies spend on physical things they expect to use for years: buildings, servers, specialised computer chips. For AI companies right now, that means data centres, the warehouse-sized buildings packed with the powerful computers needed to train and run artificial intelligence systems. Alphabet said it spent $44.9 billion on capex in Q2 alone, and its full-year forecast now sits between $195 billion and $205 billion. Tesla pledged more than $25 billion for the year, a figure that would represent roughly 200% growth compared with 2024.

Why is so much money going out?

Both companies are racing to build the infrastructure they believe AI will demand. Alphabet is expanding data centres to support its Gemini AI model, the technology that competes with ChatGPT, and to grow its cloud computing business, which rents computing power to other organisations. Tesla is retooling factories to produce the Cybercab, a two-seat driverless taxi, and Optimus, its humanoid robot, while also starting construction on an AI chip-manufacturing plant in Texas.

CEO Elon Musk put it plainly on the earnings call: "We should be spending on capex as fast as we can spend, as fast as we can without it being too wasteful." He compared the scale of the build-out to Henry Ford's mass production of the Model T, calling it "probably the fastest industrial scale-up since World War II in America."

Should ordinary people be worried?

Not directly, for now. The pain is falling on shareholders, not customers or workers. Alphabet's core advertising business remains strong, and its cloud division is growing fast. Analysts at Mizuho described Google's capex increase as "broadly anticipated" and pointed to cloud revenue jumping 82% from a year ago as a sign the investments are already producing results.

The broader concern is for the wider tech industry. Meta, Microsoft, Amazon and Apple all report results in the following week, and investors will scrutinise their spending plans just as closely. Much of the AI build-out so far has rested on a small group of companies pouring money into AI model developers, including OpenAI and Anthropic. Cheaper open-source AI models, many coming from China, are putting pressure on those bets, raising questions about whether the returns will justify the costs.

Tech research CEO Rebecca Wettemann, speaking to CNBC, said Google's core business "should calm some market fears about AI overspending." Investment consultant Keith Fitz-Gerald drew comparisons to Amazon and Netflix, companies that sacrificed short-term profits to build infrastructure that later generated enormous returns. Whether that parallel holds for AI spending on this scale is the question markets are still trying to answer.