Alphabet could sell up to 1 million AI chips by 2027.
Meta may be interested in spending billions of dollars on Alphabet’s processors.
Companies will increasingly rely on AI agents in software, and Alphabet is already leading the way.
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No one knows exactly what the next phase of artificial intelligence (AI) will be, but there are some early indicators of where tech companies both large and small are shifting. The first is more diversification in AI hardware. The second is the greater integration of AI software that is useful and works well with existing tech tools.
Both ideas could define the next phase of AI, as companies strive to position themselves as leaders in an increasingly competitive AI landscape. And while there are plenty of companies that will benefit from this, I think Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL) is uniquely positioned.
Image source: Getty Images.
Alphabet has been developing its own artificial intelligence processors for years. The company’s custom Tensor Processing Units (TPUs) have been used in the data centers to help train the AI. Alphabet has so far only used the chips for its own purposes.
But that may be about to change. This is evident from a report by The Information Metaplatforms could be interested in buying some of Alphabet’s processors for its own data centers – a deal that could potentially be worth billions of dollars.
That’s even important Nvidia(NASDAQ: NVDA) dominates the AI processor market, with an estimated 90% of the data center market using graphics processing units (GPUs). But even Nvidia seems a little nervous about Alphabet’s chip prospects. When rumors of Meta’s possible purchase of an Alphabet chip surfaced, the company posted on
The timing of Nvidia’s post and the company reminding everyone that it is much more advanced than the competition seems a bit nervous.
And maybe that’s how it should be. Analysts at Morgan Stanley believe that if Alphabet were to start selling its TPUs, it could sell 500,000 to 1 million by 2027. Furthermore, the investment bank estimates that Alphabet’s cloud sales would increase by 11% and earnings per share by 3% for every half million processors sold.
For Alphabet, hardware is of course not the only AI option. The artificial intelligence market is continuously evolving towards a software-centric tool, with AI agents becoming one of the next key areas of focus.
OpenAI’s ChatGPT is widely regarded as the dominant player in this space, with many technology companies using ChatGPT as their primary AI system to develop new software and services. But Alphabet’s latest version of its own chatbot, Gemini 3, is a formidable opponent.
Alphabet says Gemini 3 can solve complex problems with PhD-level reasoning and solve multi-step tasks such as booking a local service. The company says it outperforms other advanced AI models in terms of benchmark features, but the bigger headline of Gemini 3 may be that Alphabet has successfully kept pace with OpenAI.
OpenAI CEO Sam Altman has reportedly sent a ‘code red’ memo to his employees about the growing threat from Alphabet and has focused his company on new versions of ChatGPT and away from other products.
Gemini already has 650 million active users, and the company recently stated that its AI overview – which provides an AI response through Google Search – has more than 2 billion monthly users.
Moreover, there are indications that the company’s AI services are increasing Alphabet’s revenue. Google Cloud revenue – under which AI services are reported – rose 34% to $15.2 billion in the third quarter. That growth is a good indication that Alphabet’s Gemini integration is already paying off, even if the company’s focus on AI software is just beginning.
With Alphabet already having success with AI software and the company potentially poised to benefit from artificial intelligence processors, Alphabet is well on its way to catching the next AI wave, wherever it goes.
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.
The next phase of the artificial intelligence race could benefit this company the most. originally published by The Motley Fool
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