AI cost concerns impact tech companies

PARAGRAPH 1 --- Key facts driving this narrative include Alphabet's and Tesla's shares falling in premarket trading on Thursday, with Alphabet down around 4% and Tesla over 5%, due to increased AI spending concerns. Alphabet's free cash flow turned negative due to spiraling AI costs, while companies like Palo Alto Networks warned of 90% price drops needed for large-scale AI adoption. Tech megacaps, including Alphabet, Amazon, and Meta, slid due to AI expense concerns, with Alphabet's free cash flow crashing 47% to $10 billion.

PARAGRAPH 2 --- The market impact is evident in the tech sector, with tech stocks leading losses in the CAC 40 index and U.S. tech megacaps tumbling. Hyperscalers' combined 2026 capex topped $452 billion, raising fears of lagging AI monetization. Semiconductor stocks also suffered due to rising costs, with STMicroelectronics tumbling 3.2% in the CAC 40.

PARAGRAPH 3 --- What to watch next: Alphabet's and Amazon's Q2 earnings reports, scheduled for July 25 and July 28 respectively, will provide updates on their AI spending and its impact on their financials. Additionally, investors should keep an eye on the AI hardware sector, as any further warnings or price adjustments from companies like Nvidia or AMD could signal a broader shift in AI cost dynamics.