Alphabet’s Delayed Gemini 3.5 Pro Raises Questions About AI Dominance Amid Stock Dip

When Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) unveiled Gemini 3.5 Flash at its I/O developer conference in mid-May, the company indicated its more advanced counterpart, Gemini 3.5 Pro, would follow in June. However, June passed without a launch. Bloomberg reported on Thursday that the flagship AI model is now months behind schedule, as Google continues refining its coding capabilities. Internal concerns suggest competitors like OpenAI and Anthropic may be outpacing Gemini in development and deployment.

Alphabet shares have declined roughly 15% since reaching a peak of $408.61 earlier this year, closing at $346.77 on Friday. While this pullback is minor compared to broader market standards, it reflects unease among investors who have long considered Alphabet a top AI play. The delay raises questions about whether the company’s AI leadership is waning. Current financial data, however, suggests no immediate crisis. Alphabet’s revenue grew 22% year-over-year to $109.9 billion in the first quarter, marking its 11th consecutive quarter of double-digit gains. Google Cloud’s revenue surged 63% to $20 billion, with operating income nearly tripling to $6.6 billion. Search usage also hit record highs, with “search queries reaching an all-time high,” according to management.

CEO Sundar Pichai emphasized strong demand for Gemini, noting that cloud backlog nearly doubled to over $460 billion and AI models processed 16 billion tokens per minute—a 60% quarterly increase. These metrics indicate customer confidence has not yet wavered. Still, delays in flagship products carry strategic risks. With Alphabet projecting capital expenditures of up to $190 billion in 2025, much allocated to AI infrastructure, competitive positioning remains critical. While one late model is unlikely to derail long-term prospects, repeated delays could complicate its ability to maintain market leadership.

Investors will await Alphabet’s second-quarter results on July 22, with focus on Google Cloud’s growth trajectory and updates on Gemini 3.5 Pro’s timeline.

A Flagship Model Stuck in Testing

The delay comes as coding emerges as a key area of AI competition, particularly for enterprise clients. Google’s efforts to enhance Gemini’s coding performance involved revising training data, though results reportedly fell short of internal benchmarks. The company stated it is actively testing the Pro model with partners while emphasizing cost-effective AI solutions across multiple offerings.

Financial Resilience Amid Strategic Challenges

Despite the delay, Alphabet’s financial performance underscores resilience. The cloud segment’s accelerated revenue growth and operating income gains highlight effective monetization of AI services. Pichai’s assertion that AI investments are “lighting up every part of the business” reflects integration across core products. However, sustained innovation remains vital to justify its premium valuation, trading around 25 times forward earnings. A significant lag in AI capabilities could undermine customer demand and market perception.

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