Google may be sitting on a $900 billion gem that could disrupt Nvidia's dominance

By Britney Nguyen

Google's TPUs are the best alternative to Nvidia's chips and are seeing growing interest, according to D.A. Davidson analysts, who think a potential spinoff of the business would be worth about $900 billion

Google's TPUs are seeing growing interest from frontier AI labs, D.A. Davidson analysts said.

While Chinese rivals have gotten some notice for recent efforts to compete with Nvidia Corp. (NVDA), investors may want to pay more attention to a major domestic rival that doesn't get much buzz for its work in semiconductors.

Alphabet Inc. (GOOGL) (GOOG) has closed the gap in the past year to become "the best alternative" to Nvidia - and the Google parent company could be sitting on a $900 billion opportunity, according to D.A. Davidson analysts.

Google is seeing growing interest in its tensor processing units, or TPUs, wrote D.A. Davidson analysts led by Gil Luria. Following conversations with researchers and engineers at frontier artificial-intelligence labs, Luria and his team cited the "positive sentiment" around Google's custom-designed accelerators for machine learning and AI.

This leads the analysts to believe that there would be demand if Google did a combined spinoff of its TPU business and its Google DeepMind AI research lab. Together, the business could be worth around $900 billion, according to Luria's team, who had estimated a value of $717 billion earlier this year.

"Should this business ever be spun-off, investors would be getting a leading AI accelerator supplier and frontier AI lab in one, making it arguably one of Alphabet's most valuable businesses," the D.A. Davidson analysts said.

Google's sixth-generation Trillium TPUs, which were made generally available in December, are in high demand, according to the analysts. That demand is expected to "dramatically increase" for the seventh-generation Ironwood TPU, which is the company's first designed for large-scale inference, or the process of running AI models after training.

Google's TPUs can scale up to 42.5 exaflops, the analysts noted, referring to their computational performance, and are seeing a boost in high-bandwidth memory capacity. The chips are "also significantly more cost-efficient," which the D.A. Davidson team sees as the reason behind more interest from frontier labs.

Anthropic, a startup that has used TPUs on a smaller scale, "has been hiring TPU kernel engineers which may indicate they're looking to diversify away from their Trainium stack," the analysts said. Trainium chips are designed by Amazon.com Inc. (AMZN) Web Services for AI training, and the tech giant is investing $8 billion in Anthropic.

Google has partnered exclusively with Broadcom Inc. (AVGO) on its TPUs but is reportedly looking to add Taiwan-based MediaTek Inc. (TW:2454) as a partner for its upcoming Ironwood TPU due to its proximity to Taiwan Semiconductor Manufacturing Co. (TW:2330) and because it will charge less per chip than Broadcom, according to a report from The Information cited by Reuters.

Elon Musk's xAI is also showing interest in buying TPUs, the analysts said, "largely due in part to dramatically improved JAX-TPU tooling over the course of this year," which is the software system that allows JAX programs to run on the chips. JAX is a Python programming-language-based numerical-computing library for high-performance computing developed by Google. Until recently, the ecosystem "was a significant barrier to use at scale outside Google's own internal configurations," the analysts noted.

According to D.A. Davidson's DaVinci Developer Dataset, there has been about 96% growth in developer activity around TPUs on Google Cloud in the six months between February and August.

But while a "big-bang breakup" of Google would be in the best interest of its shareholders, according to the analysts, they "find it unlikely at this moment for a hypothetical spinoff to occur, leaving it well-undervalued within the portfolio."

With that, the analysts kept a neutral rating on Alphabet's stock and raised their price target to $190 absent "the consideration of a breakup."

-Britney Nguyen

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09-02-25 1148ET