Barclays warns Gemini 4 costs could leave Google cash-flow negative for two years

Barclays ↘ 1.27% issued a stark warning on July 22 that Alphabet ↗ 1.85% could face two consecutive years of negative free cash flow as the company pours capital into training its next-generation Gemini 4 foundation model — even as the bank raised its price target on the stock and maintained a bullish outlook.

The Numbers Behind the Warning

In a research note following Alphabet's second-quarter 2026 earnings, analyst Ross Sandler sharply raised his capital expenditure forecasts for Google's parent company, projecting $350 billion in 2027 and $500 billion in 2028 — both exceeding projected operating cash flow. The revision represents a 37% increase in the 2027 estimate and roughly 53% for 2028 compared with Barclays' prior forecasts. Under the bank's model, free cash flow would turn negative by approximately $6.5 billion in 2027 and $135 billion in 2028.wallstreetcn.com+1

Barclays attributed the dramatic upward revision directly to the training requirements of Gemini 4, which Google confirmed on July 21 had entered its "most ambitious pre-training run yet". The bank noted that Google is currently spending roughly $10 billion per month renting external GPUs to free up its own compute capacity for training.Fello AI: All-In-One AI Chat Bot for Your Mac, iPhone & iPad+1

A Quarter That Set the Stage

The warning came after Alphabet reported Q2 results that showed revenue growing 24% to nearly $120 billion, with Google Cloud surging 82% year-over-year. Yet the quarter also marked the first time in Google's history as a public company that free cash flow turned negative, at minus $5.9 billion, as capital expenditures reached $44.9 billion — double the year-ago figure. Management raised full-year 2026 capex guidance to $195–$205 billion, up from $180–$190 billion, and CFO Anat Ashkenazi said spending would "increase significantly in 2027".youtube+4

Despite the spending concerns, Barclays raised its price target on Alphabet to $425 from $405 while maintaining an Overweight rating, characterizing Google as the company at the forefront of global AI advancement.Investing.com+1

The Broader AI Spending Debate

The Barclays note crystallizes a tension at the heart of the current AI investment cycle. Alphabet's shares fell in after-hours trading following the earnings report, with investors weighing explosive cloud growth against the sheer scale of capital commitments. Analysts at other firms remained constructive: Jefferies set a $445 target, while Citizens maintained a $515 target. The market's question is no longer whether Google's AI strategy is working — cloud backlog reached $514 billion and Gemini surpassed one billion monthly AI Mode users — but whether the cost of maintaining that lead will erode shareholder returns before the payoff materializes.Watcher Guru+2