AI Spending Rips Tech Stocks --- Concerns shave $890 billion in market value from the Magnificent 7

“Wall Street is reckoning with a new reality: The biggest tech companies are no longer cash-printing machines.

 

Concerns about Alphabet's and Tesla's earnings results spread to other major tech stocks on Thursday, with investors dialed in to the implications of ramped-up capital spending, putting a dent in the artificial-intelligence trade.

 

Alphabet's shares slumped some 7%, costing the company more than $293 billion in market value, its largest one-day market-cap loss on record. Shares of Tesla tumbled 15%, the stock's worst post-earnings performance ever. The selloff extended to other tech stocks: Meta fell 3.4%, Oracle slid 4.6%. The Magnificent Seven erased nearly $890 billion in market value, the biggest one-day market cap decline since the tariff turmoil of April 2025. The Nasdaq composite lost 2.2%.

 

Both Alphabet and Tesla reported soaring revenue, but investors instead zeroed in on their AI spending. The phrase of the day: free cash flow -- which turned negative at both.

 

Alphabet's free cash flow came in at negative $5.9 billion -- the first negative result since the company went public in 2004. The company's finance chief said free cash flow would remain under pressure as the company deepens its investments in AI. Alphabet also lifted its capital-spending forecast to as much as $205 billion this year.

 

Meanwhile, Tesla is spending big on its pivot toward autonomous vehicles and robotics. That includes building a chip-manufacturing facility called Terafab, which Tesla is developing in partnership with Elon Musk's rocket company SpaceX and Intel.

 

Meta Platforms is projected to report negative free cash flow when it releases second quarter results next week, according to analysts surveyed by FactSet. Analysts expect the same from Amazon.com, which also reports next week and already saw its free cash flow dip into the red in the first quarter.

 

The world's biggest tech companies, which came to be known for generating ample cash and stable balance sheets, are in the middle of a transformation.

 

They have all bet their futures to some extent on rising AI use, investing in data centers that will make it possible to deliver the computing needed to process AI queries.

 

Those companies are racking up unprecedented debt to fund their AI infrastructure plans.

 

At the same time, cheaper open-source AI systems threaten the business models of leading AI labs whose computing and chip needs are driving hyperscale spending.

 

Microsoft, which expects to double its capital spending this fiscal year, is alone among the big AI spenders -- often called hyperscalers -- in generating positive cash flow, with expectations for more than $16 billion in the June quarter, according to FactSet.

 

"Investors are genuinely concerned that these companies are in the midst of destroying some of the most successful, scalable, investor-friendly business models the equity market has ever seen," said Mike O'Rourke, chief market strategist at JonesTrading. "That should be alarming."

 

Free cash flow is essentially the money companies have left over after expenses and making big-ticket investments.

 

It is different from net earnings, which spread the cost of major investments over several years through depreciation and amortization.

 

Some analysts said free cash flow offers a clearer picture -- albeit a bumpy one -- of how much cash is available for things investors like, including dividends and share repurchases.

 

The metric has at times been a defense against AI spending concerns. When skeptics have drawn comparisons between the current tech frenzy and the dot-com bubble of the early 2000s, bulls have rushed to point out that today's spending boom is financed by proven companies with fortress balance sheets and buckets of cash.

 

Now, those cash reserves are shrinking, and investors' patience for Silicon Valley's colossal spending spree is set to be tested.

 

David Wagner, head of equities and portfolio manager at Aptus Capital Advisors, doesn't expect it to end soon.

 

"Everyone thinks it's going to slow down, where they're looking for the first company to blink on capex expectations," Wagner said. "But this seems just to be the start."” [1]

 

1. AI Spending Rips Tech Stocks --- Concerns shave $890 billion in market value from the Magnificent 7. Lang, Hannah Erin; Li, Tina; McCabe, Caitlin.  Wall Street Journal, Eastern edition; New York, N.Y.. 24 July 2026: A1.