What changed and why it matters
On Tuesday, Alphabet said Oracle will offer Google's TPUs - custom AI chips Google has been building since 2013 - marking the first time customers can use them outside Google's own infrastructure. That extends cloud chief Thomas Kurian's push to get more Google silicon into the market while Nvidia remains the dominant supplier.
By the second quarter, Google had begun offering TPUs in facilities beyond its own data centers, and the Oracle partnership creates an additional route to them. Google declined comment.
In September at a Goldman Sachs event, Kurian - who came to Google in late 2018 after more than two decades at Oracle - said Google's AI systems recoup costs in under two years, and machines using its in-house silicon do so in roughly half that period. "It's because we can optimize that whole stack," he said.
How big the opportunity looks on paper
Forecasts differ, but the numbers are large. TD Cowen projects TPU revenue of $9.4 billion in the year's latter half and $62.5 billion in 2027, with operating margin near 20% versus roughly 35% for Google Cloud last quarter. Wells Fargo expects around $9 billion of TPU sales in the third quarter and $99 billion next year.
On the July earnings call, CFO Anat Ashkenazi said just a small portion of TPU revenue tied to existing deals will hit this year, with most of it pushed to 2027. She also noted that in the third quarter Google intended to lean more on external capacity as it expands its own infrastructure.
On costs, SemiAnalysis estimates Google's latest Ironwood TPU is about 44% cheaper to own and run than an Nvidia GB200 server. If that holds, scale could come with a margin tradeoff.
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Who's buying and how they are financing it
Anthropic is Google's largest TPU customer even as its Claude models compete with Gemini. In October of last year, it committed to as many as 1 million TPUs under an agreement valued in the tens of billions. According to Mizuho, the pact adds nearly a gigawatt of capacity coming online this year and frames the relationship as Google "arming its closest model competitor."
CNBC confirmed that OpenAI also plans to buy TPUs from Google, following The Information's initial report on the plans Tuesday.
William Blair's analysts say the $63 billion Broadcom- and Blackstone-backed financing plan would cover about half of Anthropic's 2027 needs for leasing TPUs and networking gear, implying additional financing will be necessary.
What analysts and investors are saying and what it means for your portfolio
"They're a very strong competitor, and it's very possible that they could eventually take market share from Nvidia," said Chris Ballard, managing director at Check Capital Management; as of June 30, his firm held about $236 million in Alphabet stock. He added, "It's almost like the bigger the pie is getting, the faster they're accelerating into it."
Uday Cheruvu, a portfolio manager with Harding Loevner, said, "Google was great at doing its own thing, but it was never able to serve customers," adding that the mindset has changed. He does not expect Google Cloud's operating margin to move much beyond the mid 30s, which lines up with TD Cowen's 20% TPU margin estimate versus roughly 35% for Google Cloud last quarter.
Context for scale: in the second quarter, Google Cloud posted $25 billion in revenue, compared with $42 billion at Amazon Web Services and $29 billion at Microsoft Azure. Analysts expect Google Cloud revenue to rise about 90% year over year after an 82% increase in the second quarter, with TPUs helping the pace. The bottom line: external distribution via Oracle, big pre-commits from Anthropic, and a revenue curve that leans toward 2027 could make TPUs a faster growing but lower margin slice of Google Cloud - a key variable in how markets value Alphabet's AI infrastructure push.
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