When a large amount of investment in artificial intelligence encounters a slow growth in advertising, the market responds ruthlessly. Since the release of its financial report on Tuesday, Alphabet, Google's parent company, has seen its stock price drop by 7%, as the resources invested in artificial intelligence infrastructure and the weakness of core business have become the reasons for the stock price to fall.

The initial market response to the company's second-quarter performance highlights the dilemma that technology giants face in a high-interest-rate environment in the post-pandemic era: being better than expected is no longer enough. A mixed performance is not cost-effective for many investors, especially as discussions about artificial intelligence have fueled investor sentiment.

This is not just Google, Tesla is also facing the same situation. Tesla investors are also selling their shares this week, as their core business performance is below expectations. The mixed performance of this electric vehicle leader has slowed significantly this year, with declining profits due to cooling auto demand and intensified competition.

Both reports suggest that investors have limited tolerance for companies pursuing unproven artificial intelligence business lines. When the main business is under pressure, the constraints of Wall Street will be greatly tightened. The earnings of Amazon, Meta, and Microsoft will be the next test of investors' tolerance for the investment in artificial intelligence, and these companies will release their financial reports next week.

Google's advertising revenue exceeded analysts' expectations of $64.5 billion, up from $58.1 billion last year, but YouTube's ad revenue fell short of expectations. The department's advertising revenue was $8.66 billion, lower than the expected $8.95 billion.

Wall Street has been closely monitoring how technology giants are implementing their artificial intelligence plans. But this could be a double-edged sword for stocks. The prospect of disruptive technology has raised expectations for future profits, but concerns over expensive infrastructure are also spreading, and any setbacks can deal a devastating blow to the artificial intelligence wave.

Technology leaders have been working to positively address these concerns. Alphabet CEO Sundar Pichai said during the company's earnings call on Tuesday, "The risk of underinvestment is far greater than the risk of overinvestment." In his view, spending too much on capital expenditures is a small price to pay for taking a leading position in AI-dominated fields in the coming years.

At the same time, Tesla CEO Elon Musk is even more bullish on the company's AI prospects, especially in autonomous driving. Asked about the potential impact of reduced electric vehicle tax incentives on Tesla's business during the company's earnings call on Tuesday, Musk said, "Tesla's value is primarily in autonomous driving." He added that anyone who does not believe the company can solve the problem of autonomous driving in cars should "sell Tesla stock."

Tesla's stock price rose 4% on Thursday. Google's stock price fell nearly 2% in early trading.

(Source: Google)

(Source: Google)

Some analysts' reactions suggest that the market correction has been overstated and is more short-term volatility, although they admit that economic growth is indeed slowing. Angelo Zino, a senior stock analyst at CFRA Research, said in a report on Wednesday, "We are optimistic about the trend of digital advertising (search and YouTube) and new AI solutions on their advertising platform, but we also recognize that a more challenging competitive environment will lead to slower growth."

Other observers have ignored the more challenging aspects of the report and instead focused on the overall situation of artificial intelligence. Analysts in Bank of America's global research department said in a report on Wednesday, "Strong search and cloud computing performance in the second quarter has strengthened our argument that Google is the net beneficiary of artificial intelligence."

The issue of increased artificial intelligence costs may continue to plague technology companies, especially as observers question how these investments will pay off and when investors will see returns. For Google in particular, any decline in advertising business will make it even more difficult to absorb huge artificial intelligence expenses.

Comments from Google's leadership also indicate that YouTube's data in the next quarter will show more limited growth. As investment in artificial intelligence continues to grow, investors may face the same dilemma.