Alphabet fell 7.1% and Tesla plunged 14.5%, wiping out $797 billion in Magnificent 7 market value in a single day. Here's why AI spending fears are back on the table.
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Alphabet and Tesla, the first two of the "Magnificent 7" (Apple, Microsoft, Amazon, Alphabet, Nvidia, Tesla, Meta) to report this earnings season, both disappointed investors on the same day. According to Bloomberg, the combined market cap of all seven megacaps fell by roughly $797 billion in a single session — the steepest one-day drop since the tariff shock of April 2025.
Alphabet: solid earnings, so why the selloff?
Alphabet's quarterly results actually looked decent — strong revenue growth and a large cloud backlog. Yet the stock still fell 7.13%. The culprit: capital expenditure guidance.
Alphabet raised its 2026 AI-related capex forecast to as much as $205 billion and disclosed that it is now burning cash for the first time in company history. Markets read this as a signal of margin erosion and sold off the stock accordingly, dragging the entire communication services sector down 5.2%.
Tesla: a shock negative cash flow, for the first time in two years
Tesla reported revenue above expectations but still plunged 14.52%, erasing roughly $200 billion in market cap in a single day. The decisive blow: second-quarter automotive margins missed estimates, and free cash flow turned negative for the first time in more than two years. CEO Elon Musk's comments about ramping up investment spending further deepened concerns about profitability. Analysts described it as Tesla's worst post-earnings reaction since 2013. The Tesla-led decline dragged the consumer discretionary sector down more than 5%.
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Semiconductor stocks held up relatively well
Interestingly, chip stocks — which had been highly volatile recently — weathered this selloff relatively well. The Philadelphia Semiconductor Index (SOX) dipped just 0.54%, while Micron and SanDisk actually gained. Individual names like Nvidia (-1.56%), AMD (-2.29%), and Texas Instruments (-3.13%, despite raising its revenue guidance) still declined, however.
What this means for Korean markets
Korean brokerages offered a somewhat more nuanced read. Alphabet's expanded capex plans were interpreted by some as a sign that AI investment is not actually slowing — a reassuring signal for Samsung Electronics and SK Hynix, which had fallen sharply earlier on fears of weakening AI demand. Both stocks showed early signs of a rebound following Alphabet's report. That said, analysts caution it's too early to call a full recovery, given ongoing concerns about profitability tied to such massive capital spending.
What to watch next week
Kiwoom Securities analyst Han Ji-young noted that while the July FOMC meeting looms next week, earnings from Microsoft, Meta, and SK Hynix are also due in the same window — giving the market additional catalysts that could offset macro headwinds. Sectors flagged as relative safe havens include IT hardware, IT appliances, defense, and brokerages — all of which maintain positive 12-month forward operating profit growth.
Bottom line
The Alphabet and Tesla earnings shock reignited the market's core question: is AI spending actually translating into profit? In our next post, we'll look at the flip side of the coin — Intel's earnings surprise, reported the very same day.
This post is based on reporting from Newspim, Herald Corp, Vegastooza, and Daum News as of July 24, 2026. This content is for informational purposes only and does not constitute investment advice.
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