👉 Alphabet & Tesla Get Punished for CapEx

Let’s dive right in!

The company exceeded Wall Street’s estimates and posted an unusually high net income figure distorted by $99B in unrealized investment gains on equity securities.

Google Cloud emerged as the standout performer. Cloud revenue surged 82.0% year-over-year to $24.77 billion, driven by intense enterprise demand for AI infrastructure. This growth is supported by a massive contract backlog, with $513.9 billion directly related to future Google Cloud commitments.

The core Google Services segment also performed well, with revenue growing 15% to $94.5 billion. Within this division, Google Search and other advertising revenues increased 17%, YouTube ads grew 13%, and the subscriptions, platforms, and devices category grew 15%.

To support the surging demand across its cloud and search platforms, Alphabet upwardly revised its capital expenditure outlook, signaling to the market that the AI infrastructure buildout remains in a highly capital-intensive phase.

CEO Sundar Pichai heavily focused on the monetization and adoption of the company's artificial intelligence investments. Management emphasized that the 82.0% growth in Google Cloud is a direct result of enterprise demand, noting that nearly 90% of the Fortune 100 are now using Gemini Enterprise. The executive team maintained that surging token usage and broad developer adoption justify the massive infrastructure scale-out currently underway, adding that engineering improvements have simultaneously lowered the computational cost of deploying AI features within Google Search.

Long GOOGL.

Tesla delivered a record amount of vehicles during the quarter, offset by significant profitability compression.

The core automotive division generated $20.5 billion in revenue, up 23% YoY. The company achieved a record 480,126 vehicle deliveries. However, automotive gross margin was 16.9%, or 16.3% excluding $146.0 million in regulatory credits, indicating that pricing pressure and product mix constrained per-unit profitability.

The services segment demonstrated significant momentum, growing revenue by 50% to $4.6 billion while achieving record gross margins. The energy generation and storage division also expanded, with revenues rising 13% to $3.14 billion. Additionally, active Full Self-Driving subscriptions reached 1.48 million, achieving an attach rate of over 55% on new North American deliveries.

Tesla's massive investment cycle fundamentally altered its cash flow profile during the quarter. Capital expenditures grew 142% to $5.8 billion. While the company generated $4.7 billion in operating cash flow, the heavy capital spending resulted in a free cash flow deficit of $1.1 billion. Despite this deficit, the company maintains a strong balance sheet, ending the quarter with $43.5 billion in cash and short-term investments. The strong top-line performance pushed the company past the $100.0 billion mark in trailing twelve-month revenue for the very first time.

Management focused the conversation the strategic shift toward next-generation technologies and artificial intelligence. The executive team emphasized that the elevated operating expenses and capital expenditures are necessary investments in AI infrastructure, R&D, and manufacturing capacity for the Optimus humanoid robot and the Cybercab. Management acknowledged that establishing completely new supply chains for these products will result in a slow initial production ramp, prioritizing long-term capability over near-term margin optimization.

Looking forward, management reaffirmed that production for the Tesla Semi and Megapack 3 remains on schedule for 2026 — but gave no specific forward guidance.

Long TSLA.

The company exceeded Wall Street consensus estimates for both revenue and adjusted profitability, marking the seventh consecutive quarter of exceeding financial expectations. Despite that, the stock has fallen -35% from it’s recent all-time high of $142 / share.

The Data Center and AI (DCAI) division served as the primary growth engine. Revenue for this segment grew 59% YoY to $6.3 billion, fueled by record demand for AI infrastructure. The Client Computing and Physical AI Group (CCPG) posted $8.9 billion in revenue, reflecting a 13% increase YoY. Meanwhile, the Intel Foundry business generated $5.8 billion, up 31% YoY. While the foundry division reported an operating loss of $2.1 billion, this represented a $348.0 million sequential improvement, signaling that cost controls and volume upsides are beginning to benefit the bottom line. Operationally, Intel achieved a significant milestone as its Intel 18A-P manufacturing process entered risk production on schedule.

Intel demonstrated solid improvements in core profitability, with non-GAAP gross margins expanding by 12.1% YoY to 41.8%. Management attributed this margin expansion to higher factory yields, improved cycle times, and stronger average selling prices. The company generated $7 billion in operating cash flow during the quarter. To support the demand for AI computing, Intel raised its full-year 2026 capital spending outlook by $3 billion, now projecting to spend over $20 billion in capital expenditures.

CEO Lip-Bu Tan focused on the translation of AI demand into sustainable revenue growth. The executive team emphasized that AI-driven businesses grew more than 70% YoY, accounting for roughly 70% of total revenue. Management highlighted that this demand continues to outpace available supply, resulting in the company's strongest revenue growth rate in over 15 years. The heavy capital investments announced during the quarter are explicitly designed to maximize the factory network and capture this long-term structural demand.

Looking forward, the company expects revenue of $16.4B next quarter, with gross margins north of 42%.

No position.

“The great AI trade doesn’t need to end — but the leadership within it can absolutely change. Once you’re paying $200 billion a year in capex, investors want to see the customer contracts.”