Three big earnings reports came out this week. Alphabet Inc. (NASDAQ:GOOGL) and Tesla, Inc. (NASDAQ:TSLA) reported Wednesday after the market closed, and International Business Machines Corporation (NYSE:IBM) shared its official results the same day. All three show the same thing: spending money on AI is starting to hurt profits. However, each company’s story is different enough that treating them as one big story would miss what’s actually going on. So let’s dig into it:
Alphabet Inc. (NASDAQ:GOOGL): BIG BEAT, BIGGER SPENDING
Alphabet Inc. (NASDAQ:GOOGL) made more money than expected. Revenue came in at $119.8 billion compared to the $116.9 billion analysts expected, growing 24% from last year. Its cloud business also had its best quarter ever. Cloud revenue jumped 82% to $24.77 billion, way above the $22.46 billion analysts predicted, and the amount of future cloud business it has lined up hit $514 billion, up from about $460 billion. Even so, the stock fell about 4% after hours. Why? Because Alphabet said it will spend even more money in 2026 than planned, between $195 billion and $205 billion instead of the earlier $180-190 billion range and well above the roughly $186 billion Wall Street expected. The firm’s leftover cash after paying for everything actually went negative, by $5.9 billion, for the first time in at least 10 years. That happened because Alphabet spent $44.9 billion in just this one quarter, double what it spent a year ago. Alphabet’s finance chief, Anat Ashkenazi, told analysts the tech firm still doesn’t have enough computing power to meet demand. Google is even renting extra computing capacity from SpaceX to keep up while it builds more of its own.
Tesla, Inc. (NASDAQ:TSLA): MORE CARS SOLD, LESS MONEY MADE
Tesla, Inc. (NASDAQ:TSLA) had a similar problem, just in a different business. Revenue beat expectations, coming in at $28.24 billion versus $25.71 billion expected, up 26% from last year. Tesla also delivered more cars than expected. But profit missed, and adjusted earnings were 33 cents per share, well below the 51 cents analysts expected. The profit margin on each car sold also shrank to about 16.3% instead of the roughly 18% expected. And Tesla’s leftover cash went negative too, by $1.1 billion, for the first time in over two years. That’s because Tesla spent 142% more money than usual, $5.8 billion, mostly on things like Optimus robots, its Cybercab robotaxi, and AI computing power, not on making more cars. Elon Musk called it “a massive capex year” and said he believes these investments will pay off. But right now, it’s the car business paying for all of it, and the car business is making less money per vehicle than before.
International Business Machines Corporation (NYSE:IBM): THE BAD NEWS WAS ALREADY OUT
International Business Machines Corporation (NYSE:IBM)’s story looks different, and its stock barely moved this time. That’s because the damage already happened a week earlier. IBM had warned investors its results would be bad, and the stock crashed 25% in a single day, the worst day for IBM stock since records began in 1968. So when the official numbers came out Wednesday, they weren’t a surprise. IBM’s adjusted earnings were $2.93 per share versus the $2.97 expected, and revenue was $17.16 billion versus the $17.58 billion expected, both matching what the company had already warned about. The stock only dipped slightly after an earlier small gain. IBM also cut how much it expects to grow this year, down to 4-5% from more than 5%. The reason comes down to one part of the business: sales of IBM’s Z mainframe computers fell 42% this quarter because customers are spending their money on AI hardware instead. IBM’s CEO, Arvind Krishna, told analysts the demand for IBM’s products hasn’t disappeared, but it’s just delayed. “A lot of the demand is deferred, not destroyed,” he said. He added that about a third of the deals that got pushed back had already closed by the time of this call.
ONE STORY OR THREE?
That raises a real question. Is this one big story, AI spending is finally hurting Big Tech’s profits everywhere, or are these three separate problems that just happened to show up the same week?
ALL IN ONE PROBLEM
A Reuters study looked at the five biggest tech giants that run cloud computing: Microsoft, Alphabet, Amazon, Meta, and Oracle. It found that by 2027, these companies together are on track to spend more money building things than they actually bring in. Their spending is expected to rise by about $534 billion, while the extra cash they bring in will only grow by about $340 billion. That means for every extra dollar they earn, they’re planning to spend about $1.57. Oracle is already spending way more than it earns. If that’s the real trend here, then what happened to Alphabet and Tesla, Inc. (NASDAQ:TSLA) this week isn’t a one-time bad quarter. It’s an early sign of a much bigger pattern.
WHY IBM’S STORY IS DIFFERENT
International Business Machines Corporation (NYSE:IBM)’s problem wasn’t caused by spending too much on AI. It happened because its customers are choosing to buy AI hardware instead of buying IBM’s older mainframe computers. That’s a narrower, IBM-specific issue, not a sign that AI is hurting the whole software industry. One analyst, Brooks Idlet from CFRA, said this is actually good news for other software companies. He said IBM’s problem points to something specific about IBM’s hardware business, not a broader warning about AI replacing software. Alphabet and Tesla, on the other hand, are both seeing real, strong demand for what they sell. Their issue is that they’re spending money faster than that demand turns into cash. That’s a different kind of problem than IBM’s and arguably one that’s easier for a company to control.
INSIDER MONKEY’S HEDGE FUND DATA ANALYSIS
Insider Monkey’s hedge fund database shows how differently big investors view these three companies. Alphabet Inc. (NASDAQ:GOOGL)‘s main class of stock was held by 265 hedge funds at the end of Q1 2026, down from 288 the quarter before, worth $72.4 billion total. That’s by far the widest support of the three. Tesla, Inc. (NASDAQ:TSLA) had 123 hedge funds holding it, down from 137, worth $23.1 billion. IBM had just 59 hedge funds, down from 63, worth only $1.6 billion, far less than either of the other two, even before this month’s bad news.
CONCLUSION
All three of these earnings reports point to the same basic tension: spending on AI is expensive, and it’s starting to hurt how much cash these companies have left over. But right now, only Alphabet and Tesla are being punished by investors for it. International Business Machines Corporation (NYSE:IBM) already took its hit a week earlier, so Wednesday’s numbers, along with analyst Brooks Idlet from CFRA’s view that its problem is IBM-specific, suggest it may actually have the simplest story to tell going forward. Alphabet and Tesla still need to prove their spending will eventually turn into real profit before investors trust them again.
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