Alphabet and Tesla Stocks Plummet on Massive AI Spending

Shares of Alphabet Inc. and Tesla Inc. plummeted in late July 2026 after both companies reported surging artificial intelligence infrastructure spending that resulted in negative free cash flow. Alphabet's market value dropped by approximately $300 billion as its shares fell nearly 7% following the report of its first-ever cash-flow negative quarter. The company raised its 2026 capital expenditure guidance to between $195 billion and $205 billion and warned that 2027 spending would be significantly higher.

Tesla Inc. shares crashed between 13.5% and 15%, erasing over $140 billion in market capitalization. The company missed earnings expectations, reporting 31 to 33 cents per share against a predicted 51 cents. Tesla Inc. reported a quarterly free cash flow deficit of $1.1 billion, driven by a 142% surge in capital expenditures to fund self-driving technology, Optimus humanoid robots, and a chip-manufacturing plant in Texas.

The selloff extended to other megacap companies, contributing to a $767 billion loss in combined market value for the Magnificent Seven and a 2.15% drop in the Nasdaq Composite. International Business Machines Corporation also missed revenue estimates, as customers shifted spending from Z mainframe computers to AI hardware. While executives defended the spending as necessary to meet demand and secure future returns, investors reacted with skepticism regarding the timeline and certainty of profits from these massive investments.