Gemini 3.5 Pro 'months behind', Alphabet stock falls 2%

Alphabet's stock fell 2% through 10:15 a.m. ET on Friday following a Bloomberg report Thursday afternoon revealing that its Gemini 3.5 Pro flagship AI model is "months behind schedule" and at risk of losing the AI race to OpenAI and Anthropic. The core problem, according to the report, is that engineers are frustrated Gemini 3.5 Pro still lags its rivals in coding ability—a critical differentiator in competitive AI development. Alphabet's challenge is multifaceted. The company must balance the needs of multiple internal stakeholders who rely on its models: Google Search, Google Maps, and YouTube each have different requirements and performance expectations. Simultaneously, Gemini 3.5 Pro must achieve strong coding performance to remain competitive. Complicating matters further is U.S. government oversight: regulators are testing and approving bleeding-edge AI models before market release to ensure they are safe and do not pose security risks to other companies, adding another layer of delay and constraint. The financial implications are significant. Analysts forecast Alphabet will spend roughly $187 billion（約30兆円） on capital investment this year, consuming nearly all of the $212 billion（約34兆円） in cash the company will generate from operations. This leaves Alphabet with only about $25 billion（約4兆円） in positive free cash flow—a sharp contraction from the roughly $73 billion（約12兆円） it generated last year. Investors are concerned that such massive spending, if it fails to produce competitive gains relative to OpenAI and Anthropic, represents poor capital allocation and may justify further stock selling.

Alphabet faces mounting pressure in the AI race as its Gemini 3.5 Pro model lags competitors in a critical area—coding ability—despite enormous capital commitments. The company is caught between competing demands: serving existing products like Search, Maps, and YouTube while simultaneously building competitive reasoning and coding capabilities. Adding to the complexity, U.S. government oversight of AI safety and security has extended timelines for model releases. The financial stakes are stark. Alphabet's projected capital spending of nearly $187 billion（約30兆円） will consume nearly its entire $212 billion（約34兆円） in operating cash flow, leaving only about $25 billion（約4兆円） in free cash flow—a dramatic decline from the roughly $73 billion（約12兆円） generated last year. If the company cannot demonstrate tangible competitive gains from this investment level, investor confidence erodes, as Friday's 2% stock decline suggests may already be occurring.