Alphabet’s highly anticipated Gemini 3.5 Pro AI model has missed its June release target, raising concerns about the company’s competitive standing in the rapidly evolving AI landscape. This delay, attributed to challenges in improving the model’s coding capabilities, has coincided with a roughly 15% dip in Alphabet’s stock value from its peak. While the company’s Q1 results show strong revenue growth across its cloud and search segments driven by AI, the delay prompts a closer watch on its future AI product releases and market position against rivals like OpenAI and Anthropic.
When Alphabet (GOOG, GOOGL) unveiled its Gemini 3.5 Flash AI model at its I/O developer conference in mid-May, the company promised that its more robust counterpart, Gemini 3.5 Pro, would follow in June. However, June has come and gone without the anticipated release.
A recent Bloomberg report has revealed that this flagship artificial intelligence model is running months behind schedule. Google is reportedly working to enhance Gemini 3.5 Pro's capabilities, particularly in coding. Sources within the company are reportedly concerned that rivals, including OpenAI and Anthropic, are already shipping models that surpass Gemini's current offerings.
Following these developments, Alphabet shares experienced a modest, yet notable, pullback. After hitting a peak of $408.61 earlier this year, the stock closed recently at $346.77, marking a decline of approximately 15%. This dip is significant for a stock widely considered a premier investment in the booming AI sector.
The central question now is whether this delay signifies that a leading AI innovator is falling behind. While the delay of Gemini 3.5 Pro is confirmed, its impact on Alphabet's overall investment case remains debatable, at least for now, according to the company's own impressive financial performance.
Image source: Alphabet Inc / Sundar Pichai
A Flagship Model Stuck in Extended Testing
The timing of this delay is particularly noteworthy. Google launched earlier Gemini generations, with the 3.5 Flash version arriving in May and the Pro version initially slated for a rapid follow-up a month later. Instead, Bloomberg's reporting indicates that Google's efforts to update the training data for Gemini to improve its coding skills yielded disappointing results.
Google has not yet provided a new launch date for Gemini 3.5 Pro. In an official statement, the company noted, "We're currently testing 3.5 Pro, an upgraded Flash model, and other models with partners," adding that it is "shipping quickly across a wide range of models while keeping them highly cost-effective for customers."
However, coding proficiency is a crucial battleground for AI development, representing a significant revenue driver from enterprise clients. For Google to have its flagship model lagging in this key area, while competitors continue to release advanced versions, puts the company in an uncomfortable position. Beyond a single product launch, the stakes are substantial. Alphabet has earmarked up to $190 billion for capital expenditures this year, with a considerable portion dedicated to AI infrastructure. Such massive investment hinges on Gemini maintaining its competitive edge. A minor delay might be overlooked, but a recurring pattern of missed deadlines would raise serious concerns.
Alphabet's Enduring Business Strength
Despite the AI model's delay, Alphabet's financial performance shows no signs of a broader competitive slide. The company reported a robust 22% year-over-year increase in revenue, reaching $109.9 billion in the first quarter, marking its eleventh consecutive quarter of double-digit growth. Google Cloud revenue saw an impressive surge of 63% year-over-year, hitting $20.0 billion, an acceleration from previous quarters. The cloud segment's operating income nearly tripled to $6.6 billion. Furthermore, Google Search & other revenue grew by 19%, with management confirming that search queries reached an all-time high.
Demand for Gemini models also appears strong. CEO Sundar Pichai stated that the company's cloud backlog almost doubled from the previous quarter, exceeding $460 billion. He also highlighted that Alphabet's AI models are now processing over 16 billion tokens per minute through direct customer use, a 60% increase in just three months. Pichai underscored this growth in the first-quarter earnings release, remarking, "Our AI investments and full stack approach are lighting up every part of the business." This suggests that customers haven't been waiting for Gemini 3.5 Pro before committing to contracts this spring.
Naturally, the delay warrants close observation. Alphabet currently trades at approximately 25 times forward earnings, a valuation that presumes sustained strong growth rates. Should Gemini fall an entire generation behind leaders like OpenAI and Anthropic, the demand fueling Google Cloud's backlog and the AI features driving search usage could eventually erode. However, it's unlikely that a single delayed model will push Alphabet to such a critical juncture. Nevertheless, it's a risk worth monitoring.
Investors won't have to wait long for fresh insights. Alphabet is scheduled to release its second-quarter results on Wednesday, July 22. Key areas to watch will be Google Cloud's growth rate and any updated launch timing provided by management for Gemini 3.5 Pro.
