BNP Paribas has raised its price target on Alphabet (GOOGL.US) from $420 to $450, citing the revenue potential from external sales of the company's self-developed AI chip, the Tensor Processing Unit (TPU).
The new $450 target is based on a 26.5x multiple applied to estimated 2028 earnings per share (EPS) of $17, compared with the previous valuation method of a 30x multiple on estimated 2027 EPS of $13.85. Based on Alphabet's closing price of $351.40 on Tuesday, the new target implies 28% upside.
The brokerage estimates that, based on disclosed purchase commitments from customers such as Anthropic and Blackstone, external TPU sales could generate cumulative revenue of $80 billion to $100 billion by 2028.
BNP Paribas said Alphabet has already secured more than 5 gigawatts (GW) of confirmed TPU capacity commitments, with the majority of deliveries expected to begin in 2027.
The firm expects TPU revenue to exceed $4 billion in 2026, surpass $40 billion in 2027, and reach $30 billion in 2028.
BNP Paribas anticipates that TPU sales will significantly increase the absolute amount of operating profit but will weigh on Google Cloud's operating margin in the near to medium term. The firm estimates margin dilution of approximately 115 basis points in 2027 and more than 50 basis points in 2028.
BNP Paribas also noted that supply chain constraints could affect the timing of sales, while limited publicly available information on TPU economics creates uncertainty around the profit impact.
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