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Tesla's Q2 revenue exceeded expectations, but EPS fell short of expectations, with free cash flow turning negative at $1.1 billion

Tesla announced its second-quarter financial report, with revenue of $28.24 billion, exceeding market expectations of $25.71 billion, a year-on-year increase of 26%; adjusted earnings per share of $0.33, significantly lower than the expected $0.51; net profit of $1.11 billion, a year-on-year decrease of 5%. Gross margin fell to 16.8%, down from 17.2% in the same period last year and below the market expectation of 19.4%. Operating expenses surged 47% year-on-year to $4.35 billion, and operating profit margin plummeted from 4.1% to 1.4%, mainly affected by AI and R&D investments.Free cash flow turned negative at $1.1 billion, compared to positive $146 million in the same period last year, with capital expenditures soaring 142% year-on-year to $5.79 billion. The company stated that investments in capacity construction and infrastructure for AI computing power, battery materials, and semiconductor manufacturing are ongoing. Revenue from the automotive business was $20.52 billion, a year-on-year increase of 23%, energy business revenue was $3.14 billion, an increase of 13%, and revenue from services and other businesses was $4.58 billion, an increase of 50%. FSD subscription users reached 1.48 million, a quarter-on-quarter increase of 56%. Tesla's stock price has fallen approximately 17% year-to-date.

Reuters: The five major tech giants' AI investments are squeezing cash flow, and capital expenditures may exceed free cash flow by 2027

According to an analysis of LSEG consensus expectation data by Reuters, Microsoft, Alphabet, Amazon, Meta, and Oracle are facing cash flow pressures from AI investments. On the current trajectory, by 2027, the combined capital expenditures of these companies are expected to exceed their generated free cash flow. Data shows that these companies' annual operating cash flow in 2027 will increase by approximately $340 billion compared to 2025, but capital expenditures are expected to increase by about $534 billion, meaning that for every additional $1 in cash flow, an extra investment of about $1.57 is required.Among them, Oracle faces the most significant pressure, with its capital expenditures as a percentage of operating cash flow rising from 47% in the 2022 fiscal year to 174% in the 2026 fiscal year (ending in May), with total capital expenditures reaching $55.7 billion, while operating cash flow is only $32 billion. The company's stock price has already dropped 36% this year. Amazon also saw its free cash flow drop to $1.2 billion in the first quarter. Analysts point out that if AI fails to significantly drive revenue growth, expand profits, and improve cash flow in the next two to three years, the market will begin to question whether the investment cycle has been excessive. Alphabet will be the first to announce its earnings report this Wednesday, and the market will closely monitor whether its cloud and AI revenues can keep pace with the growth in expenditures.
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