Google is facing a significant reputational crisis due to its faulty AI program, Gemini, which generated historically inaccurate and offensive responses. CEO Sundar Pichai acknowledged the issue, mentioning that the responses were unacceptable and that the teams are working to fix the problem. The controversy arises from Gemini's chatbot providing inappropriate responses and facing criticism even from prominent figures like Elon Musk. This incident has revealed deeper issues within Google, indicating a struggle to keep up in the AI race after being lapped by competitors due to safety concerns about the technology.