What are Google TPUs, and why are they bad news for Nvidia?

Google has been in the AI chip game for more than a decade. Now its custom hardware is moving markets.

Shares of Nvidia and other chipmakers tumbled last month following a report that Meta — one of Nvidia’s largest customers — was exploring a deal to use Google’s AI chips, known as Tensor Processing Units, or TPUs.

Google has primarily used its TPUs for internal use, but it also leases them to external customers through the cloud. Nvidia, meanwhile, has become the dominant provider of AI chips with its graphics processing units, or GPUs.

Google has a potential blockbuster business to unlock. In a research note sent December 2, Morgan Stanley projected that 5 million of Google’s TPUs will be purchased in 2027 and about 7 million in 2028, significantly increasing its prior projections.

Here’s a breakdown of everything you need to know about TPUs, what they’re used for, and when they might become a more prominent threat to Nvidia’s chip dominance.

What are TPUs?

Over a decade ago, Google needed more powerful and specialized compute power for the type of AI work it wanted to do. A team led by the now-CEO of Groq, Jonathan Ross, designed a new chip based on a specific type of integrated circuit for machine learning. The TPU was born.

Google has continued to improve and refine its TPUs over the years, making them more effective at both training models and inference, the process where a trained…