Alphabet's Gemini 3.5 Pro Is Late and the Stock Is Slipping. Is the AI Leader Falling Behind?

When Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) introduced Gemini 3.5 Flash at its I/O developer conference in mid-May, the company said the model's more powerful sibling, Gemini 3.5 Pro, would arrive in June. June came and went.

On Thursday, Bloomberg reported that the flagship AI ( artificial intelligence ) model is months behind schedule as Google works to improve its capabilities in coding -- and that some inside the company worry rivals OpenAI and Anthropic are shipping models that have passed Gemini by.

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After peaking at $408.61 earlier this year, Alphabet shares closed Friday at $346.77, a decline of about 15%. That's a modest pullback by most standards. But it's a notable wobble for a stock that has been one of the market's favorite ways to bet on AI.

So, is the AI leader actually falling behind? Gemini 3.5 Pro is late -- that much is settled. But does the delay change the investment case? Alphabet's own numbers argue that it doesn't. At least not yet.

The timeline is what makes this delay notable. Google launched Gemini 3 in late 2025, and the 3.5 generation was supposed to continue a rapid release cadence, with the Flash version announced in May and the Pro version promised a month later.

Instead, according to Bloomberg 's reporting, Google updated the data used to train Gemini in an attempt to improve its coding skills, and the results were disappointing.

"We're currently testing 3.5 Pro, an upgraded Flash model, and other models with partners," the company said in a statement, adding that it is "shipping quickly across a wide range of models while keeping them highly cost-effective for customers."

After all, coding is arguably the main battleground for AI labs right now, and it's a big part of what enterprise customers pay for. A flagship model that can't yet clear the company's own bar there is an uncomfortable place for Google to sit while rivals keep shipping.

And the stakes are bigger than one product date. Alphabet expects capital expenditures of as much as $190 billion this year, much of it going toward the infrastructure behind its AI push. Spending on that scale assumes Gemini stays competitive at the frontier. A model that slips by a month is noise. A pattern of slipping models would worry me.

So far, there's no sign of that pattern in the results. Alphabet's revenue climbed 22% year over year to $109.9 billion in the first quarter, making it 11 quarters in a row of double-digit growth. Google Cloud revenue jumped 63% year over year to $20.0 billion, accelerating from 48% growth in the fourth quarter of 2025 and 34% in the third quarter. The cloud segment's operating income roughly tripled year over year to $6.6 billion. And Google Search & other revenue rose 19%, with management saying search queries hit an all-time high.

Demand for Gemini itself looks healthy, too. CEO Sundar Pichai said the company's cloud backlog nearly doubled from the prior quarter to over $460 billion, and that its models were processing over 16 billion tokens per minute through direct customer use, up 60% in three months.

"Our AI investments and full stack approach are lighting up every part of the business," Pichai said in the company's first-quarter earnings release.

In other words, customers don't appear to have been waiting on Gemini 3.5 Pro before signing contracts this spring.

Of course, the delay still deserves attention. Alphabet trades at about 25 times forward earnings -- a price that assumes growth rates remain robust. If Gemini were to fall a full generation behind OpenAI and Anthropic, the AI demand filling that cloud backlog could become harder to defend, and the AI features now driving search usage could start to lag rivals. Ultimately, however, I don't think one late model gets Alphabet anywhere close to that point. But it's the right risk to watch.

Fortunately, investors won't wait long for fresh evidence. Alphabet is scheduled to report second-quarter results on Wednesday, July 22. I'll be watching two things: Google Cloud's growth rate and any launch timing management offers on Gemini 3.5 Pro.

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