Why Alphabet Stock Dropped on Friday
Key Points
Bloomberg reports that Alphabet's Gemini 3.5 Pro AI model is months behind schedule.
Alphabet keeps throwing money at the problem, but has yet to solve it.
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Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) stock slipped 2% through 10:15 a.m. ET Friday after Bloomberg reported, Thursday afternoon, that its Gemini 3.5 Pro flagship AI model is "months behind schedule" and at risk of losing the AI footrace to OpenAI and Anthropic.
Image source: Alphabet.
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Google wants to code
What's holding up Gemini 3.5 Pro? Alphabet is trying to get the model more competitive with OpenAI and Anthropic in coding software -- and its engineers are frustrated that Gemini 3.5 Pro still lags its rivals in coding ability.
The report also notes that Alphabet is struggling to balance the demands of multiple stakeholders using its models in Google Search, Google Maps, and on YouTube, so that Gemini 3.5 Pro will work well for all of them -- while also being able to code well.
But not too well. Further complicating matters is interference from the U.S. government, which wants to test and approve bleeding-edge AI models before they hit the market to ensure they're safe and won't pose security risks to other companies.
What it means for Alphabet
Why is this concerning for Alphabet? Alphabet is spending a lot of money trying to be competitive in the artificial intelligence space. Analysts forecast its capital investment will approach $187 billion this year, according to S&P Global Market Intelligence, eating up nearly all the $212 billion in cash from operations Alphabet will produce, and leaving the company with only about $25 billion in positive free cash flow.
That's barely one-third of the roughly $73 billion in FCF Alphabet generated last year. If the company doesn't have much to show for it -- if it keeps losing ground to OpenAI and Anthropic despite all the spending, well, investors might not be too happy about that.
And they might continue selling off Alphabet stock.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.
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