Alphabet Inc. (NASDAQ: GOOGL) witnessed a dramatic erosion in market capitalization, shedding approximately $199 billion in value on Thursday following reports that its highly anticipated Gemini 3.5 Pro artificial intelligence system has been delayed. The stock closed the session at an unofficial $354.46, down 4.4% on the day.
The decline came after Bloomberg reported that the Gemini 3.5 Pro model, which Chief Executive Sundar Pichai had previously stated would launch in June, has fallen short of internal performance targets, particularly in coding capabilities. The report, based on information from ten current and former employees, indicated delays of several months.
The magnitude of the market value loss is striking, surpassing Alphabet's projected 2026 capital expenditures, which are forecast at $180 billion to $190 billion. This suggests that investors are significantly lowering their expectations for returns from the company's massive AI infrastructure investments. The first-quarter capital expenditure alone reached $35.7 billion, while free cash flow totaled $10.1 billion, meaning Thursday's decline was roughly 5.6 times the quarterly capital outlay.
Alphabet's selloff outpaced declines in other AI and cloud sector peers. While Microsoft (NASDAQ: MSFT) rose 1.2%, Meta Platforms (NASDAQ: META) fell 2.6%, and Amazon.com (NASDAQ: AMZN) dropped 2.2%. The broader market also declined, with the Nasdaq slipping 1.5% and the S&P 500 dropping 0.5%, but Alphabet's steeper drop highlights additional investor worry over execution risks.
Google stated that it is trialing Gemini 3.5 Pro and additional models in collaboration with partners, emphasizing that launches are continuing at a swift pace with a focus on cost efficiency. However, the delay adds pressure to the upcoming second-quarter results, scheduled for release on July 22. Investors will be closely monitoring Cloud division growth, updates on the model rollout timeline, and projections for spending through 2027.
Despite the setback, Alphabet reported solid operating results for the first quarter, with revenue increasing by 22%. Cloud sales surged 63% to reach $20 billion, while the Cloud division reported an operating margin of 32.9% and a backlog of $462 billion. CFO Anat Ashkenazi noted "unprecedented internal and external demand for AI compute resources" when raising spending guidance for 2026.
Thursday's drop wiped out nearly all gains from a two-day rally that lasted through Wednesday. The stock ended the session 0.8% lower than its July 10 close. Risks remain that the selloff could be reversed by a rapid model launch or another robust Cloud quarter, but further declines or increased expenditure may put additional strain on the valuation.
