Alphabet is challenging Nvidia's dominance in AI infrastructure through breakthroughs in its proprietary chips and AI models. With rising market expectations for its Tensor Processing Unit (TPU) external sales potential and the successful launch of Gemini 3, Alphabet's stock has surged, pushing its market capitalization close to the $4 trillion mark and potentially reshaping the global AI chip landscape.
Morgan Stanley analyst Brian Nowak's team stated in a recent report that Alphabet selling 500,000 to 1 million TPUs externally by 2027 is a plausible forecast. This milestone would mark Alphabet's transition from using its chips solely in-house to leveraging them as strategic assets amid global computing shortages. Reports suggest Meta is in talks to purchase billions of dollars worth of Alphabet’s AI chips, fueling speculation that Alphabet could erode Nvidia’s market share and significantly boost its earnings. This optimism has driven Alphabet’s market cap toward $4 trillion.
Morgan Stanley estimates that every 500,000 TPUs sold externally could increase Alphabet’s cloud revenue by 11% and boost EPS by 3%. The accelerated growth in cloud services and expansion into the chip market may justify higher P/E multiples for Alphabet’s stock.
Wall Street is closely watching Alphabet’s AI chip potential. Morgan Stanley notes that while TPUs were initially designed for internal workloads, their success and global demand have attracted external interest. Nowak highlights Alphabet’s investments in TPU development, particularly software enhancements improving compatibility—a key factor for large-scale external sales. Achieving 1 million TPU sales by 2027 would solidify Alphabet’s position in the AI hardware market.
Nvidia currently dominates the AI chip market with a 90% share, recently peaking at a $5 trillion valuation. However, Alphabet’s entry could disrupt this monopoly. Reports of Meta adopting Alphabet’s chips signal potential market share shifts. Despite Nvidia’s recent pullback to a $4.3 trillion market cap, the narrowing gap with Alphabet reflects investor reassessments of their AI ecosystem roles.
Nvidia remains confident, stating on social media platform X that it is "a full generation ahead" and its platform uniquely supports all AI models across environments. This underscores the market’s technical rivalry: Nvidia touts versatility, while Alphabet leverages customization and software ecosystems.
Beyond chips, Alphabet’s AI model advancements, like Gemini 3—seen as a strong competitor to OpenAI’s ChatGPT—have fueled its stock. Alphabet shares have risen 56% over three months and 71% YTD, trading near all-time highs despite a 1% dip Wednesday. In contrast, Nvidia has fallen 2% over three months, though still up 32% in 2025, indicating a market shift toward Alphabet as the new AI leader.