Is a New AI Model the Catalyst Alphabet Stock Needed?

Like many tech stocks, Alphabet's (NASDAQ: GOOGL) (NASDAQ: GOOG) stock pulled back in recent months. Investors still question its position in the artificial intelligence (AI) landscape, which isn't helping the company's stock.

However, Alphabet continues to speed ahead with innovation, announcing its newest AI model, Gemini 2.5 Pro Experimental, only about three months after introducing Gemini 2.0. Let's look at Alphabet's latest AI model to see if it can be a catalyst for the stock moving forward.

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Advanced reasoning

The biggest upgrade to Alphabet's new Gemini model is that it will be a thinking model that is able to reason through its thoughts before responding. It said this leads to improved performance and accuracy. This means its model will be able to "analyze information, draw logical conclusions, incorporate context and nuance, and make informed decisions."

Alphabet said that its new model has received the highest score on the LMArena leaderboard by a wide margin, topping the performance of models from rivals such as OpenAI's ChatGPT 4.5 and o3-mini, xAI's Grok 3, Anthropic's Claude Sonnet 3.7, and DeepSeek R1, among others. LMArena is an open platform for crowdsourced AI benchmarking.

According to Alphabet, Gemini 2.5 is particularly strong in the areas of coding, math, and science. The company said that coding performance takes a huge leap over its previous Gemini model. Among its strengths include creating visually compelling web apps and agentic code applications as well as code transformation and editing.

Like other Gemini models, it is multimodal, being able to handle information from text, audio, images, and video. It can also handle data sets from an entire code repository, which is a centralized platform where developers store and manage code.

Developers and enterprises can begin experimenting with Gemini 2.5 now in Google AI Studio. The model will be available on its Vertex AI platform within Google Cloud in the coming weeks.

The Verge recently did an unscientific test comparing Gemini 2.5 with ChatGPT o3-mini, which is OpenAI's newest reasoning model. It came away impressed with both models, noting their strengths in detail, depth, speed, and reasoning. While the Verge gave o3-mini the slight edge, it shows how quickly Alphabet has caught up.

Image source: Getty Images.

A leading innovator

One thing that keeps Alphabet's stock back is the notion that it is behind in AI and not enough of an innovator. However, I think this is far from true. The company is making great progress in catching up, and its newest reasoning model is the latest example. And it has a clear lead in some AI areas like text-to-video, where its Veo 2 platform has shone above the competition.

The company's Gemini model has already been helping to drive strong results in its cloud computing segment, where it saw segment revenue grow 30% last quarter. Here, customers use Google Cloud's Vertex AI platform to leverage Gemini as a foundation model to build out their own customer models and applications.

Meanwhile, continually enhancing Gemini will also lead to improvements in its core search business and its AI Overviews. As this gets better, it should eventually look to better monetize these AI Overviews as well.

Outside of AI, Alphabet saw strong innovation in other areas, such as quantum computing and autonomous driving. With quantum computing, the company made a major breakthrough last year. One of the big issues facing this emerging technology has been that it's error-prone, especially as the number of quantum bits (qubits) it uses increases. With its new Willow chip, Alphabet has been able to show the ability to reduce errors as it scales up the number of qubits it uses. Quantum computing could be the next big technology after AI and Alphabet has shown an early leadership position in the space.

While investors salivate over the potential of Tesla's robotaxi business, Alphabet has jumped out to a big lead with its Waymo unit being the only company to offer paid robotaxi rides in the U.S. Waymo has been taking ride-hailing share in its early markets, while it is set to expand to a number of new cities over the next few years. It needs to reduce the cost of its technology, but right now, it is the tech leader in the this emerging area.

Time to buy the stock?

By itself, Alphabet's new Gemini model may not be a catalyst for the stock, but it is another building block for a company that is showing that it's an innovator. Meanwhile, its recent announcement that it will acquire Wiz will help bring the company another fast-growing business in the area of cybersecurity.

Trading at a forward price-to-earnings (P/E) ratio of around 18 times this year's analyst estimates, Alphabet stock is just too cheap to ignore at these levels.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and Tesla. The Motley Fool has a disclosure policy.