What happens when heavy AI spending meets slowing ad growth? The market answered with unforgiving sentiment, sending shares of Google’s (GOOG, GOOGL) parent company Alphabet down 7% since its earnings report Tuesday as the resources being poured into AI infrastructure became a reason to pull back alongside perceived weakness in the core business.
The market’s initial reaction to the company's second quarter highlighted a post-pandemic, high-interest-rate dynamic familiar to the tech giants: Great is no longer good enough. A mixed bag of results won’t cut it for many investors, especially as chatter around AI fosters a hair-trigger temperament.
That’s as true for Google as it is for Tesla (TSLA), another Magnificent Seven member that investors are walloping this week. Similar to the search giant, Tesla’s weaker-than-expected results stem from the heart of its business, helping to explain the sliding stock price. The EV leader reported mixed results, revealing notably lower growth this year and sagging profits stemming from cooling vehicle demand and increased competition.
Both reports show that the leeway given to companies pursuing unproven AI business lines only goes so far. Wall Street’s leash gets a lot shorter when the main business is under pressure. Amazon (AMZN), Meta (META), and Microsoft (MSFT) earnings will serve as the next test of investor tolerance for AI spending when the companies report next week.
