Tesla stock (TSLA) plunged 13% on Thursday after the electric vehicle maker reaffirmed plans to sharply increase spending on artificial intelligence infrastructure.
The move overshadowed stronger-than-expected revenue and reinforced investor concerns over rising capital expenditure and weakening cash generation.
The stock extended losses after closing 1.3% lower on Wednesday. The stock’s market cap is now near the $1 trillion mark.
Tesla reported adjusted earnings of 33 cents per share, below analysts’ expectations of 51 cents, while revenue rose to $28.24 billion from $22.5 billion a year earlier, exceeding consensus estimates of $25.71 billion.
The company also reported negative free cash flow for the quarter as capital expenditure surged 142% year over year to $5.79 billion.
Tesla reaffirmed plans to spend more than $25 billion this year as it expands investments in artificial intelligence infrastructure, autonomous driving, robotics, and computing capacity.
Alphabet shares also fell more than 6% after the Google parent reported negative free cash flow and raised its 2026 capital expenditure forecast to between $195 billion and $205 billion, while warning spending would increase further in 2027.
The declines highlighted growing investor concerns that spending on artificial intelligence is rising faster than cash generation across the technology sector.
Revenue grows as margins weaken
Tesla said net income declined 5% year over year to $1.11 billion, or 32 cents per share, from $1.17 billion, or 33 cents per share, a year earlier.
Automotive revenue increased 23% to $20.52 billion, while revenue from the company’s energy business, including solar and battery storage systems, rose 13% to $3.14 billion.
Revenue from services and other businesses, including vehicle repairs outside warranty, climbed 50% to $4.58 billion.
Despite stronger automotive revenue, Tesla’s gross margin fell to 16.8% from 17.2% a year earlier, missing analysts’ expectations of 19.4%, according to StreetAccount.
The company attributed the pressure in part to lower average selling prices after introducing lower-cost versions of its Model 3 and Model Y vehicles following the retirement of the higher-priced Model S and Model X.
AI investment remains priority
Tesla said it continues to expand infrastructure supporting its long-term artificial intelligence strategy.
“Capacity build out and ramp related to our multi-year infrastructure initiatives, including AI compute, solar, battery material, and semiconductor manufacturing are underway,” the company said in its shareholder presentation.
Chief Executive Elon Musk defended the company’s elevated spending during Wednesday’s earnings call.
“This is a massive capex year. I’m confident that all the things that we’re investing in will yield incredible returns. Really, maybe the best capex returns that we’ve ever seen,” Musk said.
Tesla also said it is installing first-generation production lines for Optimus, its humanoid robot, and expects production to begin soon.
Executives told investors that the company’s fleet of autonomous Cybercab vehicles has now completed 380,000 unsupervised miles, pointing to continued progress in its autonomous driving program.
Analysts remain positive on long-term outlook
Despite the market’s negative reaction, several Wall Street firms maintained constructive long-term views while lowering their price targets.
JPMorgan analyst Rajat Gupta lowered his price target on Tesla to $445 from $475 while maintaining a Neutral rating.
Gupta said Tesla shares are “likely to remain range-bound near-term” as forward earnings estimates continue to fall amid rising investment spending.
Mizuho analyst Vijay Rakesh also cut his price target to $450 from $480 while reiterating an Outperform rating.
Rakesh said Tesla remains “well-positioned leading physical AI” through its Cybercab platform, with humanoid robotics offering a longer-term growth opportunity.
He added that favorable regulatory tailwinds should help offset near-term headwinds from European tariffs and the repeal of US EV tax credits, with Tesla likely to face less pressure than its peers.
Piper Sandler maintained its Overweight rating and $500 price target.
Analyst Alexander Potter said the post-earnings selloff was not surprising despite improving long-term indicators.
However, he said Tesla will need to “disprove doubts re: Optimus and Cybercab” before the stock can break out of its current trading range, adding that while he remains optimistic, “catalyst timing is difficult to predict.”
Tesla shares had fallen about 11% this month and 17% for the year through Wednesday’s close before Thursday’s selloff.
The decline has coincided with weakness in SpaceX shares, which have fallen more than 40% from their post-listing peak following the company’s June market debut.
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