When it rains, it pours. Google-parent Alphabet is being hit not just by worries about its own artificial-intelligence products, but those of Chinese rivals as well.
Alphabet stock was down 2.3% on Friday, adding to the previous session's drop of more than 4%.
The search company is facing two AI problems. The first is that its own next-generation model, Gemini 3.5 Pro, appears to have been delayed after the company originally said it would be released in June.
Internal testing last month showed Gemini 3.5 Pro fell short of expectations in areas such as coding, Bloomberg reported, citing people familiar with the matter.
"We're shipping quickly across a wide range of models while keeping them highly cost-effective for customers. We're currently testing 3.5 Pro, an upgraded Flash model, and other models with partners, and we're productively engaged with the U.S. government on model testing and broader frameworks," a Google spokesperson said in an emailed statement.
It's a bad time to be falling behind in AI. The second issue hitting Alphabet stock is that China's Moonshot AI claimed Friday that its Kimi K3 model could outperform some cutting-edge U.S. systems. That appeared to be backed up by initial benchmarking results from independent evaluation firm Artificial Analysis, which showed K3 ahead of all of Google's models in an intelligence ranking, although it was also more expensive per task than Gemini 3.5 Flash.
"[K3's release] absolutely shows how competitive this market is and that innovation is accelerating. That said, adoption rates are slowing as the cost of tokens remains high so it's kind of like the new Ferrari debut -- it's really fast, but not everyone is going to buy one," said Brian Mulberry, chief market strategist at Zacks Investment Management.
Still, Google could do with its own Ferrari-level AI sooner rather than later. The company reports earnings next Wednesday. If it raises its expected spending on AI infrastructure without being able to back it up with performance, expect an ugly reaction.
Write to Adam Clark at adam.clark@barrons.com
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(END) Dow Jones Newswires
July 17, 2026 12:47 ET (16:47 GMT)
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