By Khac Phu Nguyen
Publication Date: 2025-12-04 17:53:00
This article first appeared on GuruFocus.
Alphabet (NASDAQ:GOOG) is stepping into the spotlight for a reason that could be bigger than its ad engine: its in-house tensor processing unit chips. A 31% fourth-quarter rally, one of the strongest in the S&P 500 (SPY), is being powered by growing conviction that Alphabet’s TPUs could become a major revenue driver. These application-specific chips have long been the backbone of Google Cloud, and investors are warming to the idea that selling them externally could be a lucrative extension of that strategy. Analysts point to recent momentum triggers, including Alphabet’s commitment to supply tens of billions of dollars of TPUs to Anthropic and reports that Meta (NASDAQ:META) may be in talks to spend billions more. The fact that the company’s new Gemini AI model is optimized for TPUs has only added fuel to the idea that Alphabet could be carving out a uniquely efficient lane in the AI hardware race.
What’s changing the investment narrative is how the Street is modeling the upside. DA Davidson’s Gil Luria argues that if companies want to diversify away from Nvidia (NASDAQ:NVDA), Alphabet may be one of the few credible alternatives, suggesting TPUs could become a roughly $900 billion business over time if Alphabet chooses to sell them more widely. Portfolio managers highlight that TPUs, while less flexible than Nvidia GPUs, can be cheaper and are already gaining traction at a moment when investors are scrutinizing AI…
