Google Faces 'Two Major Challenges' in AI! Stock Drops Over 6% — Can Earnings Turn the Tide?

Alphabet (GOOGL-US), the parent company of Google, is not only grappling with external concerns over the progress of its artificial intelligence (AI) products but also confronting a surging challenge from Chinese competitors.

According to Barron's, Alphabet's stock closed down 2.17% on Friday (17th), following a drop of over 4% the previous trading day, resulting in significant cumulative losses over two trading sessions.

Analysts point out that the search giant is currently facing two major AI challenges. The first is the reported delay of its next-generation model, Gemini 3.5 Pro, which the company had initially planned to launch in June.

As Bloomberg reported, citing insiders, internal testing last month showed that Gemini 3.5 Pro failed to meet expected performance levels in areas such as code generation.

In response, a Google spokesperson stated via email: "We are accelerating product rollouts across multiple models while maintaining highly cost-effective pricing for our customers. We are currently testing 3.5 Pro, an upgraded Flash model, and other models with partners, and continue constructive collaboration with the U.S. government on model testing and broader framework issues."

Analysts emphasize that falling behind in the fiercely competitive AI race is a risky proposition.

The second factor impacting Alphabet's stock is the announcement by Chinese startup Moonshot AI on Friday that its latest model, Kimi K3, outperforms certain cutting-edge U.S. systems.

Preliminary benchmark results from independent evaluator Artificial Analysis appear to support this claim. In intelligence rankings, K3 surpassed all of Google's in-house models, although its per-task cost remains higher than that of Gemini 3.5 Flash.

Brian Mulberry, Chief Market Strategist at Zacks Investment Management, commented: "The launch of K3 clearly demonstrates how intense the competition is and how fast innovation is moving. That said, adoption growth is slowing due to persistently high token costs—it's like unveiling a new Ferrari: it's fast, but not everyone can afford it."

Nonetheless, Barron's warns that Google may need to deliver its own "Ferrari-grade" AI product soon.

The company is scheduled to release its earnings report next Wednesday (22nd). If it raises its AI infrastructure spending forecast without demonstrating corresponding performance improvements, the market could react negatively.