As Big Tech firms competing in artificial intelligence (AI) further expanded their multi-trillion-won investment plans, investors sold off shares en masse over concerns about weakening short-term profitability. The companies, meanwhile, countered that AI is already driving earnings improvements and that the market is undervaluing their long-term worth.
Big Tech Investment Expansion Erases Market Cap; Market Focused on Costs First
According to Yahoo Finance and CNBC on the 27th, Alphabet raised its capital expenditure forecast for this year from the previous 180 billion to 190 billion dollars to 195 billion to 205 billion dollars. Management said it is increasing investment in computing infrastructure to respond to expanding AI demand, and projected that investment in 2027 would be even larger than this year's.
Tesla also maintained an aggressive investment stance. Its capital expenditure in the second quarter of this year was 5.79 billion dollars, up 142% from the same period last year, and it forecast annual investment would exceed 25 billion dollars. Production of the humanoid robot "Optimus" and expansion of robotaxis are the core investment areas.
But the market interpreted the investment expansion as rising costs rather than a growth strategy. When Alphabet's second-quarter capital expenditure of 44.9 billion dollars slightly exceeded market expectations of 44.7 billion dollars, its stock plunged 7.13% the day after its earnings release, wiping out about 293 billion dollars in market capitalization in a single day. Tesla's stock also plunged 14.5% after it disclosed its investment plans.
CEOs Say "Investment Effects Already Showing"...Confidence in AI Monetization
Although the expansion of AI investment is dragging down stock prices, some point out that the market is undervaluing long-term value too much.
Yahoo Finance analyzed on the 27th that the recent market reaction interpreting the expansion of AI-related capital expenditure negatively diverges from the actual AI business results of the companies. The companies are broadening the scope of AI use rather than slowing the pace of investment, and monetization is already in full swing in some areas, according to the analysis.
Big Tech executives also stressed that AI investment is not a cost for the future but an investment that has already begun to produce results.
Alphabet CEO Sundar Pichai explained that infrastructure expansion is inevitable, saying, "There is currently a shortage of computing capacity to handle AI demand."
Tesla CEO Elon Musk also said, "This year is a year concentrated on large-scale capital expenditure," adding, "The investments currently underway will lead to remarkable returns, and there is a possibility of recording the highest-ever return on investment (ROI)."
Chipmaker AMD also said it is feeling the effects of AI investment. AMD CEO Lisa Su said in an interview with Yahoo Finance, "Compute is intelligence," adding, "Productivity is actually improving, as we use AI to make better products and speed up development."
Cases of AI use are not limited to manufacturing. Mastercard CEO Michael Miebach said, "AI-powered financial fraud detection and 'agentic commerce' services, in which AI purchases products on behalf of consumers, are beginning to be applied to actual business." IBM also assessed that companies' demand for building AI infrastructure is steadily increasing, and that such investment will lead to higher corporate value over the long term.
"Results Still Lacking" vs. "Already Proven in Numbers"
In the market, there is also no shortage of views that investment results matter more than investment scale.
Ben Barringer, head of technology research at Quilter Cheviot, told CNBC, "Investors are concerned about how much the surging capital expenditure will damage profitability," analyzing that "the delayed launch of Gemini 3.5 Pro and the lack of AI new products beyond expectations also heightened doubts surrounding Alphabet's competitiveness."
On the other hand, some assess that the earnings show evidence that AI investment is already producing results. Alphabet's Google Cloud revenue was 24.8 billion dollars, up 82% from last year and exceeding market expectations, while its operating margin greatly improved from 20.7% to 35.6%. Tesla also continued growth in its core business, with revenue from its core automotive business rising 23% to 20.52 billion dollars.
Alison Porter, portfolio manager at Janus Henderson, said, "These earnings are a representative example showing that AI infrastructure investment is connecting to actual profits," adding, "Since they recorded the strongest growth in the past five years, the assessment of AI investment is likely to change over time."
Yahoo Finance forecast, "The AI investment that began 18 months ago is bearing fruit one by one," adding, "If companies are given time to prove the effects of their investment, the market's assessment two years from now could be greatly different from now."
