Alphabet Inc. (GOOGL) shares declined approximately 2% on Friday, extending losses from the previous session after a report indicated that the company's flagship Gemini 3.5 Pro artificial intelligence model is facing delays. The stock had already fallen roughly 4% on Thursday following the initial report, bringing its one-month decline to about 5%.
According to a Bloomberg report, Google has postponed the broader release of Gemini 3.5 Pro, its most advanced AI model, as it continues refining the model's capabilities, particularly in coding. The delay has reportedly frustrated engineers, AI researchers, and managers who are concerned that Google risks falling behind competitors such as Anthropic and OpenAI. Google first unveiled Gemini 3.5 Pro during its Google I/O developer conference in May, stating that the model was being used internally and would be rolled out more broadly the following month.
This setback comes at a time when Alphabet is investing heavily in AI across its products and cloud infrastructure. The company is integrating AI into services including Search, Maps, and YouTube while balancing internal testing and government engagement. Analysts forecast that Alphabet's capital expenditure will reach approximately $187 billion by 2026, according to S&P Global Market Intelligence. That figure would consume nearly all of the company's projected $212 billion in operating cash flow, leaving only about $25 billion in positive free cash flow, compared with roughly $73 billion generated last year.
Despite these concerns, several Wall Street firms have maintained positive views on Alphabet ahead of its earnings report, scheduled for July 22. Wedbush Securities named Alphabet a "top pick" and reiterated an Outperform rating. Analyst Ygal Arounian described Alphabet as the "best-positioned full stack AI offering for the next era of internet and technology," highlighting its ownership of the consumer distribution layer (Search, Android, Chrome, YouTube), the Gemini model, custom silicon (TPUs), and cloud infrastructure (GCP) at scale. Wedbush also noted that Gemini's monthly active users exceeded 900 million in May, up from 750 million in February, and that AI monetization is beginning to surpass the company's traditional search business.
BMO Capital also reiterated its bullish stance, raising its price target to $455 from $435 while maintaining an Outperform rating. The firm increased its fourth-quarter and fiscal 2027 Google Cloud estimates by 2% and 13%, respectively, citing stronger cloud demand, expanding capacity, and a growing backlog. BMO noted that Alphabet's search business continues to demonstrate mid-to-high-teen growth, though new questions are emerging around Gemini model intelligence given the reported delay.
An Alphabet spokesperson responded to the reports, stating, "We’re currently testing 3.5 Pro, an upgraded Flash model, and other models with partners, and we’re productively engaged with the US government." The company remains focused on rapidly releasing AI products, according to the spokesperson.
For investors, the recent pullback in Alphabet shares may present an attractive entry point, according to Wedbush, which views the decline as a buying opportunity. The broader tech selloff has also impacted other AI-related stocks, as seen in the recent Dow drop of 486 points amid an AI-led tech selloff. Meanwhile, some analysts suggest investors should diversify beyond AI and consider stocks with strong fundamentals for 2026.
As Alphabet prepares to report its quarterly earnings, the market will be closely watching for updates on AI monetization, cloud growth, and any further developments regarding Gemini 3.5 Pro. The company's ability to demonstrate meaningful progress in AI capabilities will be key to justifying its substantial spending plans.
This article is for informational purposes only and does not constitute financial advice.
