Google stock lags behind QQQ as the Gemini controversy adds to the woes

The Magnificent Seven companies, the world’s biggest seven stocks, extended their 2023 momentum this year and continue driving the broader equity market to new peaks. 

But despite the overall upward trajectory, not all tech giants have acted as catalysts, with Alphabet (NASDAQ:GOOGL), Apple Inc (NASDAQ:AAPL), and Tesla Inc (NASDAQ:TSLA) lagging behind the likes of NVIDIA (NASDAQ:NVDA), Microsoft (NASDAQ:MSFT), Meta (NASDAQ:META), and Amazon.com Inc (NASDAQ:AMZN). 

As a result of several headwinds, Google stock is down 4.5% in 2024, notably underperforming the tech-oriented Invesco Invesco QQQ Trust (NASDAQ:QQQ) ETF, which gained over 8.4% since the start of the year, hitting a new closing all-time high last Friday. 

Why is Google stock underperforming QQQ?

Google shares have hit a new three-year low in its performance relative to the Invesco QQQ amid persisting challenges for the tech giant. 

Analysts attribute this relative underperformance to several factors, including a perceived lack of an AI strategy, issues with cost control, and rising competitive pressures. 

Among the biggest factors that contributed to lackluster performance in Google stock is the latest debacle related to Gemini, Google’s artificial intelligence (AI) model.

Last month, the tech behemoth implemented a restriction on its "Gemini" chatbot technology, preventing users from creating human images. 

The move came after incidents where users utilized Gemini to generate images of Black Founding Fathers and racially diverse Nazis, leading to widespread controversy. Google acknowledged the problem, stating there were "inaccuracies in some historical depictions." 

In a recent video filmed at San Francisco’s AGI House, Google co-founder Sergey Brin said the company’s AI models, including Gemini, are still a work in progress.

"We definitely messed up on the image generation and I think it was mostly due to not thorough testing and it definitely, for good reasons, upset a lot of people,” he said.

Gemini controversy wipes $90 billion off GOOGL’s market value

The controversy surrounding "Gemini" led to a drastic $90 billion decrease in Alphabet's market value, following significant criticism, particularly from right-wing circles, about the AI model's tendency to exhibit racial bias. 

Critics argued that the algorithm, described as overly “woke,” persistently generated non-white images in response to prompts that were historically inaccurate.

Brin admitted that the AI model “leans left in many cases,” but claimed that it wasn't a deliberate choice. 

He also noted, that despite the clear issues with Gemini, similar errors could occur in other large language models.

Google stock is the third worst-performing Magnificent Seven company year-to-date, behind TSLA and AAPL, which lost 24.3% and 9%, respectively.