Investors in Alphabet, Google's parent company, are increasingly confident that its chip business will become a major growth driver for future revenue. The success of Alphabet's Tensor Processing Unit (TPU) chip has been a key factor behind its 31% stock surge in Q4, ranking tenth among S&P 500 constituents. Internally, TPU has long been regarded as a core advantage, accelerating the growth of its cloud computing business. However, the market is growing more optimistic about Alphabet's potential to sell these chips to third parties, opening a new revenue stream that could ultimately be worth nearly $1 trillion.
"If companies want to diversify beyond Nvidia, TPU is a strong alternative, which justifies the optimism," said Gil Luria, Head of Technology Research at DA Davidson. "The chip business could eventually surpass Google Cloud in value. But even without external sales, better chips lead to superior and more efficient cloud services." Luria estimates that if Alphabet seriously pursues TPU sales, it could capture 20% of the AI market within a few years, translating to a roughly $900 billion business.
Alphabet declined to comment. A Nvidia spokesperson cited CEO Jensen Huang's recent remarks on the company's competitive edge: "Competition between firms is fundamentally a contest between teams. There are very few teams globally capable of building such complex products at an exceptional level."
**Google’s TPU** TPUs are application-specific integrated circuit (ASIC) chips, custom-designed for accelerating machine learning in Alphabet’s ecosystem. While less flexible than Nvidia’s chips, they are more cost-effective—a tangible advantage as investors scrutinize AI-related spending.
"Nvidia’s chips are far more expensive and harder to obtain, but if ASICs are an option, Alphabet is the best choice and has led this market so far," said Mark Iong, Equity Portfolio Manager at Homestead Advisers. "It won’t dominate the entire market, but it’s the stock’s secret weapon."
**Recommended Reading:** - Amazon Rushes to Launch Latest In-House AI Chip, Challenging Nvidia and Google - Rivals Close In: OpenAI CEO Sounds "Red Alert" to Turbocharge ChatGPT
"Alphabet is the only company with leadership across every layer of AI," Iong noted, citing Gemini, Google Cloud, TPU, and other areas. "This gives it a tremendous edge."
Comments