Alphabet’s AI chip strategy reshapes the battle for semiconductor dominance

Alphabet’s growing focus on its own AI chips is changing how investors view the race for leadership in the semiconductor industry, a Bloomberg report said on Thursday.

What began as an internal effort to support Google’s AI models and cloud workloads is now shaping expectations across the wider market.

The company’s tensor processing unit chips were once seen as a behind-the-scenes tool for machine learning, but their expanding commercial relevance and rising demand forecasts are putting Alphabet in a stronger position in the global contest for AI infrastructure.

As projections grow, markets are watching how this hardware push could shift Alphabet’s long-term revenue mix and influence competitive dynamics across the sector.

Growing investor interest

Alphabet’s stock has climbed sharply in the fourth quarter, helped by mounting confidence in the potential of TPUs.

These chips have always played a central role in the company’s cloud computing performance, although that use case was largely internal for years.

That perception is changing as investors consider the possibility of broader commercial adoption.

The idea that Alphabet could start selling TPUs externally has become a key factor in the company’s recent rally and adds a new dimension to how markets analyse its growth path.

As per Bloomberg, momentum accelerated in late October when Alphabet announced plans to supply tens of billions of dollars worth of chips to Anthropic PBC.

The news triggered a two-day increase of more than 6% in the shares.

A further rise followed in November after a report suggested that Meta Platforms Inc. was exploring options to access TPUs.

These developments signalled to investors that interest in Alphabet’s chips is not limited to existing cloud customers and could extend to some of the sector’s largest technology players.

Hardware design edge

TPUs belong to the category of application-specific integrated circuit chips. They are designed to perform a single specialised function, in this case, speeding up machine learning operations.

This makes them less adaptable than the more flexible semiconductors widely associated with Nvidia Corp.

However, they are cheaper, which has become an important consideration at a time when companies are rethinking the cost of building or scaling AI systems.

The lower price point is giving Alphabet an opening in the market for organizations seeking alternatives.

Confidence in TPUs received another boost with the launch of Alphabet’s Gemini AI model. Gemini was designed to run efficiently on these chips, reflecting the company’s long-term intent to build software and hardware in alignment.

This approach strengthens Alphabet’s position across several AI layers, including Google Cloud, model development and infrastructure planning.

Rising demand signals

Analysts are now modelling higher demand for TPUs over the coming years.

Morgan Stanley expects about five million TPUs to be bought in 2027 and seven million in 2028. Both figures mark significant increases from earlier estimates.

While most of this demand is still expected to come from Alphabet’s own operations and from Google Cloud Platform sales, the revised forecasts suggest that the scale of the chip business is expanding faster than many anticipated.

The bank’s modelling also estimates that every 500,000 TPUs sold to a third-party data centre in 2027 could add around $13 billion to Alphabet’s revenue and roughly 40 cents to earnings per share.

Alphabet’s projected revenue for the year stands at $447 billion. Consensus figures for 2027 have already risen more than 6% over the past three months.

Valuation and market impact

The rapid rise in expectations also raises questions around valuation risk. Alphabet’s shares are trading at about 27 times estimated earnings, the highest multiple since 2021 and well above the company’s 10-year average.

Even so, they remain cheaper than several major technology rivals, including Apple, Microsoft and Broadcom.

Some investors have trimmed positions after the stock’s rally, although they remain confident in Alphabet’s AI progress and in the potential of TPUs to support future revenue.

The performance of Alphabet Inc., which closed at 320.62 with a gain of 1.46% on December 3, sits alongside Nvidia Corp at 179.59 with a loss of 1.03%.

These movements reflect investor attention on the evolving competitive landscape, where Alphabet’s AI chips are playing an increasingly visible role.

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