Alphabet Launched a New AI Model Today. Google CEO Just Warned of an AI Bust.

Alphabet CEO Sundar Pichai has led the company’s artificial-intelligence investments. (KIMIHIRO HOSHINO/AFP via Getty Images)

Key Points

• Alphabet’s CEO launched a new AI model while warning of potential industry overinvestment, stating no company is immune to a bust.
• Large tech companies are now using 95% of operating cash flows on capital expenditures, buybacks, and dividends, up from 80% in 2019.
• A Bank of America survey found a net 20% of investors believe companies are overinvesting, driven by AI capital expenditure concerns.

Alphabet’s CEO is warning against overinvesting in artificial intelligence, despite launching a new AI model that he considers the best in the industry.

Chief Executive Sundar Pichai rolled out Alphabet’s Gemini 3 on Tuesday.

“It’s state-of-the-art in reasoning, built to grasp depth and nuance,” Pichai said in a statement. “Gemini 3 is also much better at figuring out the context and intent behind your request, so you get what you need with less prompting.”

Gemini 3 will be integrated into search, as well as the company’s Gemini app and developer tools.

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In midday trading, Alphabet stock was up 1.1% at $286.15. It gained 3.1% on Monday after Warren Buffett’s Berkshire Hathaway disclosed in a government filing that it had bought 17.8 million shares during the September quarter.

Being picked out as the bargain stock in the AI trade by one of the most famed long-term investors in the stock market should give Alphabet shareholders a sense of safety. But Pichai is still wary about the risks of a AI bust.

“When we go through these investment cycles, there are moments we overshoot as an industry,” Pichai said in an interview with the BBC, released on Tuesday. “There are elements of irrationality.”

Large technology companies such as Google, Amazon.com , Meta Platforms , and Microsoft are currently using around 95% of their operating cash flows on capital expenditures, buybacks, and dividends. That compares with around 80% in 2019, according to Goldman Sachs, with the main driver of the increase being raised capex.

Microsoft and Amazon were recently downgraded by Rothschild & Co. Redburn analysts, who warned the economics of generative AI weren’t as lucrative as had been assumed.

Worries about AI overinvestment are spreading according to the findings of Bank of America’s November global fund manager survey. For the first time since August 2005, a majority (net 20%) of investors in the fund manager survey say companies are overinvesting, the BofA survey said. “This jump is driven by concerns over the magnitude and financing of the AI capex boom,” it said.

Asked how hard Alphabet would be hit if an AI bubble bursts, Pichai said “no company is going to be immune.”

In his Gemini 3 launch statement, Pichai noted that Google’s AI Overviews now has 2 billion users a month and its Gemini app surpasses 650 million users a month.

Alphabet was a Barron’s stock pick coming into 2025. The stock is up 73% since then.

Write to Adam Clark at adam.clark@barrons.com