Alphabet’s Strategic Move into AI Chips
Alphabet has commenced direct sales of its custom AI chips, known as Tensor Processing Units (TPUs), for external data centers, positioning itself as a competitor to Nvidia, which has dominated the AI accelerator market with over 80% share. This strategic shift occurred in the second quarter of 2023, a significant move after years of internal use and limited access to Google Cloud customers.
According to Gil Luria from D.A. Davidson, Alphabet could capture 20% of the AI infrastructure market, potentially making its chips business worth around $900 billion. Current estimates suggest that spending on AI accelerators could reach $600 billion by 2030, with Alphabet aiming to generate over $100 billion annually from TPU sales by the end of the decade. Alphabet’s stock trades at 19 times earnings, lower than its three-year average of 25 times, reflecting a potential undervaluation in light of its growth prospects.
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