Strong earnings, stronger spending

I'm not going to beat around the bush. The first earnings from the Big Tech companies came in strong, but spending was even stronger, leaving some investors nervous and others relieved.

Tesla reported a 23% rise in Q2 revenue compared with the same period last year (when revenue had taken a hit due to the political controversies surrounding Elon Musk, remember). Record vehicle sales brought in the money, but AI spending ate into margins: the operating margin fell from 4.1% to 1.4%. The company reiterated plans to spend around $25–26 billion this year on AI infrastructure, robotaxis, Optimus and custom chips. Investors didn't like what they heard and sent the shares down 4% in after-hours trading.

Over at Alphabet, the picture was much the same. Google parent Alphabet reported strong numbers: total revenue rose 24% to nearly $120 billion, operating profit climbed 34% to more than $40 billion and — this is the big number — cloud revenue surged 82%, well above the 63% cloud growth reported in Q1. That seems to support the idea that Google is right to invest heavily in AI infrastructure: the business is growing, and it is growing fast.