Investors are increasingly eyeing Alphabet Inc.’s (NASDAQ:GOOGL) (NASDAQ:GOOG) in-house artificial intelligence chips as a potential breakout business, betting that the company’s tensor processing units could evolve from a behind-the-scenes strength into a major new revenue engine.
Wall Street is increasingly betting that tensor processing unit (TPU) chips could become a major revenue driver for Google’s parent company.
The TPU’s internal success has already fueled a 31% rally in Alphabet stock in the fourth quarter, ranking it among the top performers in the S&P 500.
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Analysts highlight that selling TPUs to third parties could open a nearly $1 trillion market opportunity, while even internal use strengthens Google Cloud by boosting efficiency and AI performance.
Wall Street sees Alphabet’s chips as a strategic advantage.
Alternative to Nvidia
Gil Luria of DA Davidson told Bloomberg TPUs offer a viable alternative for companies seeking to diversify from Nvidia Corp (NASDAQ:NVDA), noting the business could eventually surpass Google Cloud in value.
Morgan Stanley projects strong TPU adoption, estimating five million units sold in 2027 and seven million in 2028, adding roughly $13 billion to Alphabet’s revenue.
Alphabet has already made moves signaling potential external TPU sales, including a multibillion-dollar supply agreement with Anthropic PBC and reported talks with Meta Platforms Inc (NASDAQ:META).
Meta’s Strategic Shift
Wellington-Altus Private Wealth’s James E. Thorne argued that Meta’s reported shift toward Google’s TPUs reflects a tactical response to Nvidia’s supply constraints, not a weakening of Nvidia’s dominance.
He says hyperscalers are using TPUs as a cost-effective hedge because Nvidia’s Blackwell and Rubin graphics processing units face long wait times, but stresses that high switching costs and CUDA-related software friction prevent any broad industry move away from Nvidia.
Thorne adds that TPUs provide extra capacity, not a true replacement, and calls the market sell-off in Nvidia a predictable “bearish hit” in an overheated environment.
Tightening Competition in AI Chip Production
SemiAnalysis founder Dylan Patel says competition is tightening as Google and Amazon.com Inc. (NASDAQ:AMZN) ramp up custom AI chip production, putting fresh pressure on Nvidia.
He noted Google’s TPUs are running at full capacity and argues that selling them directly, rather than limiting them to cloud rentals, could unlock massive market value and become Nvidia’s biggest long-term threat.
Patel added that the future balance of power will hinge on where AI development concentrates: custom silicon gains ground when a few tech giants dominate workloads, while broader industry demand still favors Nvidia’s general-purpose GPUs.
Price Action: GOOGL stock is up 0.65% at $321.70 premarket at last check on Thursday.
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