It seems almost impossible to please AI investors lately...
Last Friday, we covered their skepticism of Google parent Alphabet (GOOGL) as it pours "too much money" into AI.
Alphabet's cash flows have turned negative. Shareholders weren't convinced its massive infrastructure investments would translate to stronger earnings. (They seem to be coming around now.)
Alphabet is far from alone. Another Big Tech company is also struggling in the AI race, but for the opposite reason...
I'm talking about Tesla (TSLA).
Tesla's investment plans look modest compared with the companies competing to win the AI race. While its peers are spending hundreds of billions of dollars on AI investments, Tesla is spending a small fraction of that.
And somehow, that's also a problem for investors.
These are the same folks who punished Alphabet for spending too much on AI. But with Tesla CEO Elon Musk's other public company, SpaceX (SPCX), now competing with Tesla in the AI race... the spending gap is getting tough to ignore.
Tesla expects to spend more than $25 billion in capital expenditures ('capex') this year...
But as of July, the company had spent just $2.5 billion... or one-tenth of the full-year target.
That's a striking contrast with the rest of Big Tech. Alphabet, e-commerce titan Amazon (AMZN), Facebook owner Meta Platforms (META), and software giant Microsoft (MSFT) are forecast to spend a combined $725 billion in capex this year.
Their stocks have faced pressure whenever investors feared their budgets were getting too large. Meta lost more than 11% in a single session last October after raising its capex guidance, and Microsoft hit a one-year low this June as its annual spending projections ballooned.
Tesla shares faced the reverse problem. Its stock has fallen 27% year to date... the worst performance among the Magnificent Seven. Investors saw its restrained budget as a sign that product development was moving too slowly.
Tesla's vision extends far beyond the electric vehicles it built its business with...
The company has committed $25 billion to AI this year alone... designed its own chips... and is retooling factories for robots. It's also trying to build fleets of robotaxis and an army of Optimus robots.
Each of those projects needs billions of dollars of investment before bringing in a single dime.
Tesla was the only way public investors could buy into Musk's AI ambitions for years. So they had to put up with whatever he chose to do with it.
The story changed when SpaceX went public in June and brought xAI under its roof. It has become a more direct home for Musk's largest AI plans.
That doesn't mean investors have left Tesla for dead. As we'll cover tomorrow, despite its significant drop, the market has high expectations for this Mag 7 giant.
Tesla is now competing with Musk's other company... for the story that once made it unique. That's not a recipe for a great investment.
Regards,
Joel Litman
August 11, 2026
