Alphabet's AI Chip Potential

Investors are increasingly bullish about Alphabet's custom-designed semiconductors, viewing them as a potential major revenue source. The company's Tensor Processing Units (TPUs) are gaining recognition for their efficiency and performance, particularly with the launch of the Gemini 3 AI model, which was designed to run efficiently on these chips. This alignment between hardware and software strengthens Alphabet's position in AI, spanning Google Cloud, model development, and infrastructure.

Analysts project rising demand for TPUs, estimating that significant sales to third-party data centres could substantially boost Alphabet's revenue and earnings per share. While most demand is expected from Alphabet's operations and Google Cloud Platform, revised forecasts suggest faster expansion of the chip business than previously anticipated. This increasing adoption of TPUs by large companies signals a potential shift in the AI industry, with Alphabet and its partner Broadcom strengthening their positions.

However, the rapid rise in expectations also raises questions about valuation risk, with Alphabet's shares trading at a high multiple. Despite this, they remain cheaper than some tech rivals, and investors remain confident in Alphabet's AI progress and the potential of TPUs to support future revenue. The performance of Alphabet's stock reflects investor attention on the evolving competitive landscape, where its AI chips are playing an increasingly visible role.