00:00Well, shares in Alphabet and Tesla are tumbling.
00:03The first of the so-called Magnificent Seven to report earnings this season failed to impress investors.
00:09Revenues are rising, but so is spending, driven by massive investment in artificial intelligence.
00:15Now investors are asking whether the AI boom is delivering returns.
00:20Fiona Sincotta is an analyst at Citi Index.
00:23Fiona, great to have you on the show again.
00:24So we have seen that both of these companies have seen revenues above expectations and both stocks fell.
00:31So what does this suggest?
00:33Yes. So, I mean, there's quite a lot going on here.
00:37I mean, if we look at Tesla, for example, share price down around 13 percent.
00:42We saw a miss on profitability.
00:45We saw margins.
00:47So profit per car was also down considerably because they've been cutting prices, offering incentives.
00:53But as you mentioned, this idea of investment in sort of a pivot towards AI and robotics has been much
01:03bigger than expected.
01:04And that's what's really worrying investors.
01:07We saw something very similar with Alphabet.
01:09The share price has dropped around 6 percent, despite really strong revenue and adjusted earnings were above expectations.
01:17But the amount of capital expenditure, which is going towards this AI infrastructure build-out is enormous.
01:25And that's making investors very nervous.
01:28Well, Fiona, we'll talk about Alphabet a bit later.
01:30So let's talk about Tesla first.
01:32So the company is expecting more than 25 billion U.S. dollars in capital spending this year as it ramps
01:38up AI infrastructure and humanoid autonomy and also manufacturing.
01:42So do you think investors should be worried now?
01:48I think, you know, there is definitely a reason for caution.
01:52I mean, it's quite interesting because I think, you know, Tesla has been talking about, you know, robotics and autonomous
02:00driving for some time.
02:02But it does feel that investors are getting to this stage now, actually, where they're getting a bit impatient and
02:08they want to start to see significant returns on investments and sooner rather than later.
02:14And I think it's this sort of time time horizon that's getting investors a little bit nervous.
02:20You know, that capital expenditure is up significantly from around eight billion previously.
02:25So, you know, that's why we're seeing is investors want to see the return proportional to the investment.
02:32And that's not happening just yet.
02:34And Fiona, do you think that could trigger probably broader sell off in the AI industry, in the AI trade?
02:41We have the potential.
02:43I mean, I think there's been a lot of jitters with regard to the AI trade heading into these earnings
02:49because of the very sharp run up that we've seen in sort of AI stocks.
02:55So we are seeing investors becoming a little bit more picky, should I say, in where they're putting their money
03:02in the AI trade.
03:03Obviously, next week, we've also got sort of Meta, Microsoft, Amazon also reporting.
03:09So it's going to be very much in focus.
03:11But weak or should I say strong spending numbers is going to potentially see further weakness in in the share
03:18prices.
03:18Well, thank you very much for your insight.
03:20That's just to be honest.
03:21I'm Kota from City Index.
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