Big Tech's AI Spending Spree Raises Red Flags Ahead of Earnings Reports
Big Tech companies are facing scrutiny over their AI spending habits as investors await earnings reports from four megacap firms next week. Alphabet and Tesla both reported quarterly capital expenditures exceeding their operating cash flow, resulting in negative free cash flow for the second quarter.
Alphabet's capex-to-operating-cash ratio stood at 115%, while Tesla's was at 123%. The company filings show that Alphabet accessed outside capital to support its expansion, securing $49.6 billion via common stock and mandatory convertible preferred shares, as well as an additional $20.3 billion from senior notes.
The Federal Reserve meeting on July 28 and 29 will also be closely watched, with markets currently pricing in a 33% probability of a rate hike. Additionally, preliminary second-quarter GDP figures and June inflation numbers will be released next week.