Alphabet Inc. has experienced a dramatic reversal in its stock performance, with shares down 15% from their peak and erasing $692 billion in market value. According to reports from Moneycontrol, the stock decline has made it the second-biggest point drag on the S&P 500 in recent months. The company had previously been the standout performer among Big Tech stocks, with shares hitting an all-time high on May 13 after soaring more than 150% in the previous 12 months, positioning it among the 25 best performers in the S&P 500 Index over that stretch. As reported by Moneycontrol, the momentum has reversed due to questions about a brain drain at Google's parent and fears that the company is losing its edge in AI.
The stock decline has been attributed to significant personnel departures and strategic concerns about Alphabet's AI capabilities. As reported by Moneycontrol, Google lost two top employees to Anthropic PBC and OpenAI a few months ago, followed by Jeff Dean's departure earlier this month to launch a startup and take several high-profile coworkers with him. Additionally, Demis Hassabis stepped down as chief executive officer of the Google DeepMind AI research lab, accepting a new role as chairman. These moves sent Alphabet shares tumbling 4% on Aug. 5, erasing $186 billion in market value in a single session. According to CFRA's Angelo Zino, "You've had this kind of brain drain. It does pose some risk because it's the area of the market everybody is looking at at this point in time, right? It's, you know, can you monetize AI?"
Alphabet faces significant delays in developing its most powerful AI model, Gemini 3.5 Pro, which is behind schedule as the company works on improvements, particularly with its coding capabilities. According to reports from Moneycontrol, the company released a new Gemini 3.7 Flash model two weeks ago but gave no update on the timetable for Gemini 3.5 Pro. The delays have raised concerns about Alphabet's ability to compete with rivals like Anthropic and OpenAI in the AI race, despite the company's success with its tensor processing unit (TPU) chips and overwhelming computing power. However, a Google spokesperson countered that "Our AI momentum and shipping velocity are at an all-time high. We're rolling out model updates within weeks of each other, with Gemini 3.7 Flash becoming our fastest-growing model to date and Gemma surpassing one billion downloads."
The stock's decline reflects broader investor concerns about Alphabet's AI spending and returns on investment. As reported by Moneycontrol, Alphabet raised $25 billion in an early August bond offering featuring generous yield payouts, while investors increasingly press the biggest AI developers for proof of returns on their spending to build out AI data centers. The tech-heavy Nasdaq 100 Index hasn't reached a new high since May, with macroeconomic fears from the Middle East war, US trade war with Canada, and threats of higher interest rates amid stubborn inflation contributing to market uncertainty. According to Janus Henderson's Divyaunsh Divatia, "Capex is going to go up significantly next year. They're going to be negative free cash flow, they already raised equity, they're already raising a lot of debt. So that is one of the things where a lot of people are just focused on this company's turning free cash flow negative."
Despite the recent challenges, some analysts maintain optimism about Alphabet's AI prospects while acknowledging the need for improved communication. According to Janus Henderson's Divyaunsh Divatia, "If you're an AI winner, you have a leading-edge model and the market gives you a certain multiple premium, which has diminished recently." However, Sands Capital Management's Daniel Pilling suggested that the recent talent movement could be beneficial, stating that "maybe this is a good thing, you know, maybe you need to have a new group of people try their hand and get Google back to where it belongs." Visible Alpha's Melissa Otto noted that investors expect to keep holding Alphabet to a high standard, stating "I'm less interested in the exact person and more interested in what they say in their next earnings call about the performance of AI and how it's going to start to really translate into fundamental growth."
