For much of the last year, Alphabet Inc. has been the Big Tech stock to beat as investors bet that it was the most-likely winner from the artificial intelligence boom.

Alphabet shares hit an all-time high on May 13 after soaring more than 150% in the previous 12 months, putting them among the 25 best performers in the S&P 500 Index over that stretch and far outpacing the other Magnificent Seven technology giants. But the momentum has reversed since then due to questions about a brain drain at Google’s parent and fears that the company is losing its edge in AI.

The stock is down roughly 15% from its peak, erasing more than $700 billion in market value and making it the biggest point drag on the S&P 500 in that span. At the crux of the selloff is Alphabet’s suddenly shaky standing in the AI race, with its heavy spending on building out the infrastructure to develop the technology and the delayed release of its new Gemini AI model weighing on investor sentiment.

Shares were lower by less than 1% in early trading Thursday.

And then there’s the personnel issue.

A few months ago, Google lost two top employees to Anthropic PBC and OpenAI. Earlier this month, Jeff Dean, who was key to Google’s AI strategy, departed to launch a startup and took several high-profile coworkers with him. And Demis Hassabis stepped down as chief executive officer of the Google DeepMind AI research lab, accepting a new role as chairman. Those moves sent Alphabet shares tumbling 4% on Aug. 5, erasing $186 billion in market value in a single session.

“You’ve had this kind of brain drain,” said Angelo Zino, senior vice president and head of technology at CFRA. “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?”

Of course, Alphabet is hardly the only firm challenged by Big Tech’s talent race. Last year, Meta Platforms Inc. poached Ruoming Pang from Apple Inc., where he ran the iPhone maker’s AI models team, with a $200 million multi-year compensation package and then brought in a couple of his senior deputies.

Around that time, OpenAI Chief Executive Sam Altman complained that Meta was offering his employees signing bonuses of as much as $100 million to join its top AI team. Meanwhile, OpenAI has lured more than 400 Apple employees with rich salaries and hefty stock option offers. And Apple has sued OpenAI for stealing trade secrets.

At Alphabet, however, turnover questions are just the tip of the iceberg. Its more immediate concerns surround 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, an area where Alphabet is already seen as lagging Anthropic and OpenAI. Two weeks ago, Google released a new Gemini 3.7 Flash model but gave no update on the timetable for Gemini 3.5 Pro.

“If you’re an AI winner, you have a leading-edge model and the market gives you a certain multiple premium, which is what was being seen in the stock over the last, let’s say nine to 12 months, which has kind of gone away a little on the margins,” said Divyaunsh Divatia, analyst at Janus Henderson.

Reasons for Optimism

Alphabet, however, says progress is coming quickly.

“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,” a Google spokesperson said.

The optimism for Alphabet’s AI business stems from the success of its tensor processing unit, or TPU, chips and the overwhelming amount of computing power it has amassed. But it’s also facing skepticism about its spending after raising $25 billion in an early August bond offering featuring generous yield payouts.

Alphabet has company there, as 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. In the backdrop are macroeconomic fears from the war in the Middle East, the U.S. trade war with Canada and the threat of higher interest rates amid stubborn inflation.

At least part of the rotation away from Alphabet shares is just the normal market churn. For example, Microsoft Corp. has surged more than 25% since the end of July, when its earnings report showed the fastest cloud growth in four years. Alphabet, on the flip side, sold off after its earnings in late July as investors balked at its heavy capital expenditures and negative free cash flow.

“Capex is going to go up significantly next year,” Divatia said. “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 and funding this capital intensity or this race to AGI through using equity as well as debt capital markets, which makes a lot of investors nervous.”

Meanwhile, some bulls see a silver lining in the recent movement of talent. And, despite the stock’s recent slump, it’s outperformed the broader market and its Magnificent Seven peers over the last 12 months with a 65% gain.

“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,” said Daniel Pilling, portfolio manager at Sands Capital Management, which owns the stock. “They have some of the best chips in the world, they have probably, if not the most, one of the biggest compute fleets in the world, and they should be really able to succeed.”

Still, investors expect to keep holding Alphabet to a high standard in communicating its next phase of AI growth.

“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,” said Melissa Otto, head of technology, media and telecommunications research at Visible Alpha. “That’s somewhat of an open question.”

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