Tesla and Google AI spending triggers tech share sell-off

TL;DR:

• Technology stocks sold off sharply on Thursday, with the Nasdaq falling 2.6% — its worst day in almost two months — after heavy AI spending at Tesla and Google unsettled investors.
• Tesla dropped more than 12% as AI investment hit profits; Alphabet fell almost 7% after warning capital spending could top $200bn (£150bn) this year.
• Alphabet burned through $5.9bn (£4.4bn) of cash in the quarter — its first negative cash flow in two decades as a public company.

The falls spread to Amazon, Meta, Microsoft and Oracle, all committed to large AI build-outs, with a rising oil price and the prospect of interest-rate hikes compounding the nerves. The trigger was simple: investors are increasingly unwilling to fund open-ended AI capital expenditure while returns remain unproven. Tesla’s own results underlined the tension — revenues rose but heavy discounting and the loss of US regulatory-credit income squeezed margins, even as the company pours money into robotics and driverless vehicles.

Spend now, justify later

Alphabet raised its capex guidance for the third time, to $195bn–$205bn, most of it for data centres and chips. Tesla, meanwhile, is pouring money into Cybercab and Optimus production even as its core electric-vehicle margins thin. The market’s patience is visibly narrowing — a shift that chimes with IBM cutting its forecast as AI spending crowds out other IT budgets and Barclays telling clients AI is not yet lifting productivity.

Looking forward

For UK investors — and the pension funds heavily weighted towards US megacap tech — the episode is a reminder that AI enthusiasm and AI economics have started to diverge. Concerns were sharpened by the recent launch of Kimi K3, a cheaper Chinese model, which raises the uncomfortable question of whether hundreds of billions in spending buys durable advantage. The next earnings season will test whether discipline, not scale, becomes the market’s preferred signal.