Tesla and Alphabet lead tech rout as AI spending fears erase billions

$787 billion was wiped off the Magnificent 7 index in its steepest single-day drop since April 2025, after Tesla and Alphabet reported second-quarter earnings that revealed soaring capital expenditures and weak profits Source: foxbusiness. The selloff erased about $2 trillion in market cap from the group since late May.

Earnings Miss and Capex Surge

Tesla's Q2 net income fell 5% year-over-year to $1.1 billion, missing analyst estimates of 33 cents per share Source: apnews. Revenue rose 26% to $28.2 billion, but operating income dropped 57% as R&D spending surged 49% to $2.37 billion Source: arstechnica. The company reported negative free cash flow of $1.1 billion, with capex soaring 142% to $5.79 billion Source: cnbc. Alphabet also raised its 2026 capex forecast to $195–$205 billion, driving its first-ever quarterly cash burn Source: cnbc.

Optimus Robot Challenges

On Tesla's earnings call, Elon Musk warned that the Optimus humanoid robot will be "the hardest product to scale manufacturing that we've ever made" due to all-new parts and no existing supply chain Source: gizmodo. Tesla removed language about "volume production" from its shareholder deck, and Musk acknowledged zero Optimus units are performing useful factory work Source: thenextweb.

Market Reaction

Tesla shares fell over 13% on Thursday, while Alphabet dropped 6.5% Source: theguardian. The broader Nasdaq declined more than 2%, and the S&P 500 fell over 1% Source: theguardian. Analysts and investors are increasingly focused on the returns from AI investments. As Edward Jones analyst Brian Therien noted, "the negative share-price reaction may indicate that investors are becoming more focused on returns generated on AI-related investments" Source: foxbusiness.