Alphabet’s artificial intelligence strategy is starting to attract a different kind of attention on Wall Street. Investors are no longer focused only on Google’s search dominance or its cloud division. The company’s in-house semiconductor lineup is now being viewed as one of the most important long-term growth engines inside the Google empire, with some analysts arguing the business could reach nearly a trillion dollars in value if executed correctly.
TPUs Are Fueling Alphabet’s Stock Momentum
Alphabet’s tensor processing units, known as TPUs, have become central to the company’s pitch to investors. The stock has surged roughly 30 percent in the fourth quarter, placing it among the strongest performers in the S&P 500. Part of that enthusiasm is tied directly to the success of these chips, which were originally built to power Google’s own AI models and cloud infrastructure.
What began as an internal advantage is now being viewed as a potential external product line. Analysts are increasingly confident Alphabet could eventually sell TPUs more broadly, turning its semiconductor work into a standalone revenue engine.
Gil Luria, head of technology research at DA Davidson, summed up the opportunity simply. “If companies want to diversify away from Nvidia, TPUs are a good way to do it, and that means there is a lot of reason to be optimistic.” He added that the chip business “could ultimately be worth more than Google Cloud. But even if it never sells a chip externally, the better chip means a better, more efficient cloud.”
Luria estimates Alphabet could capture roughly 20 percent of the broader AI chip market if it becomes aggressive about selling TPUs. That slice alone carries a potential value close to 900 billion dollars.
A Growing List of Interested Buyers
Alphabet has not commented publicly on whether it intends to market TPUs broadly. Still, recent deals reveal rising industry demand.
In October, Alphabet announced a multibillion dollar chip supply agreement with Anthropic, one of the fastest growing AI players. The announcement sent Alphabet shares sharply higher over a two day stretch.
One month later, The Information reported that Meta was in talks to spend billions for access to TPUs. That news triggered another jump in Alphabet’s stock price, reinforcing investor belief that demand for alternative AI chips is accelerating.
Nvidia, which currently dominates AI infrastructure, responded by pointing to CEO Jensen Huang’s recent statement about its competitive lead. “As a company, you are competing against teams. And there just are not that many teams in the world who are extraordinary at building these incredibly complicated things.”
Why TPUs Matter in the AI Arms Race
Unlike Nvidia’s general purpose GPUs, TPUs are application specific integrated circuits, or ASICs. They are custom built for machine learning workloads. ASICs lack the flexibility of a GPU, but they are significantly cheaper and more efficient per watt for certain types of AI training and inference.
This difference matters. Enterprises are starting to question the cost of scaling AI projects, especially at a time when capital spending on infrastructure is being scrutinized.
Mark Iong, equity portfolio manager at Homestead Advisers, put it bluntly. “Nvidia chips are much more costly and hard to get, but if you can use an ASIC chip, Alphabet is right there, and it leads that market by far.” He added that TPUs are “part of the secret sauce for the stock.”
The debut of Alphabet’s latest Gemini AI model only reinforced TPU value. Gemini earned strong reviews and was built to run efficiently on the TPU architecture, demonstrating the advantage of controlling both the hardware and the AI model stack.
“Alphabet is the only company with leadership in every layer of AI,” Iong said, referring to Gemini, Google Cloud, the TPU portfolio, and other AI initiatives. “That gives it an incredible advantage.”
Analysts Begin Pricing In a TPU Sales Strategy
While Alphabet has not formally announced plans to sell TPUs at scale, Morgan Stanley analysts believe such a strategy is beginning to take shape.
Brian Nowak, who covers Alphabet, pointed to internal forecasts from the firm’s Asia semiconductor team. They now expect approximately five million TPUs to be purchased in 2027, which is 67 percent higher than prior projections. For 2028, that estimate climbs to seven million units, which is 120 percent above earlier expectations.
Most of these chips will likely support Alphabet’s own models and its cloud clients, but Nowak says the data “speaks to the potential for GOOGL to sell more TPUs.”
Morgan Stanley estimates that every 500,000 TPUs sold to outside data centers could add around 13 billion dollars to Alphabet’s 2027 revenue and boost earnings per share by roughly 40 cents. With analysts expecting Alphabet to bring in about 447 billion dollars in revenue that year, external TPU sales could meaningfully move the needle.
Consensus revenue estimates for 2027 have already climbed more than 6 percent in the last three months.
Risks Remain, but Alphabet Still Looks Undervalued Compared to Peers
The rising optimism carries some obvious risks. If the TPU business fails to materialize as expected, Alphabet’s valuation could come under pressure. Shares currently trade around 27 times forward earnings, one of the highest multiples since 2021 and above the company’s decade-long average.
But even at that valuation, Alphabet still trades at a discount to Big Tech peers like Apple, Microsoft, and Broadcom.
Allen Bond, portfolio manager at Jensen Investment Management, said he recently trimmed his Alphabet position after the stock rally. However, he emphasized that he remains bullish overall, noting there is “a credible path to the TPUs becoming a driver of revenue.”
“Alphabet is showing tangible strength and progress with AI, and while that is increasingly appreciated by investors, the valuation still looks reasonable given growth expectations,” Bond said. “The fact that we have increased evidence of AI momentum at a company that trades at a discount to Microsoft and Apple means it remains a core holding.”
Why This Matters for Investors
For all the excitement around AI, the infrastructure layer is becoming the true battleground. The companies that control compute will shape the next decade of technological development.
Alphabet now appears to be positioning itself not just as a participant, but as a direct challenger to Nvidia’s dominance. If TPUs grow into a commercial product line, Alphabet gains a second major business to pair with its cloud platform.
Investors should watch three signals moving forward:
- Whether Alphabet reveals a formal TPU sales roadmap
- Additional third party interest from AI startups or major tech companies
- Shifts in Nvidia’s pricing, supply, or positioning
If Alphabet executes, the next trillion dollar business inside the company might not be search, cloud, or advertising. It could be silicon.
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