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Nvidia’s (NVDA) chip supremacy has dominated the artificial intelligence narrative over the past two years. However, some experts think that Alphabet (GOOG) (GOOGL) may enter the chip market and even challenge Nvidia’s dominance.
Alphabet, Google’s parent company, generates most of its revenue from online advertising. Additionally, it has gained significant traction in the public cloud market in recent years. Now, the company’s custom-designed Tensor Processing Units (TPUs) and DeepMind AI segment might be key drivers of the top line in the upcoming decade.
Google’s TPUs are specialized chips designed to accelerate machine learning workloads through efficient matrix processing. TPUs can handle massive parallel computations essential for neural networks. Unlike traditional CPUs and GPUs, TPUs are optimized for high-volume, low-precision calculations with enhanced input and output capabilities. The system processes data through infeed and outfeed queues, utilizing high-bandwidth memory for optimal performance. Google also offers Edge TPUs for AI deployment on resource-constrained devices, creating a comprehensive cloud-to-edge AI infrastructure.
According to a report from D.A. Davidson, the TPU and AI business could be worth $700 billion as a standalone entity, almost a third of Alphabet’s current market cap. Today, Alphabet’s TPUs power AI operations in data centers, while DeepMind invests billions of dollars in research and development to compete with OpenAI.
The AI arms race is intensifying, and Alphabet’s strategic positioning in key verticals could prove transformative as it offers investors exposure to an “Nvidia-like” growth story.
Alphabet Stock Is Under Pressure
Shares of Alphabet fell over 7% on Feb. 5 after its fourth-quarter revenue fell short of consensus estimates. The search engine giant reported revenue of $96.47 billion, compared to estimates of $96.56 billion. It topped earnings estimates by just $0.03 per share in Q4.
In the December quarter, its revenue grew by 12% year-over-year, slower than its 2024 growth rate of almost 14%. Alphabet experienced slow growth across business segments such as online ads, YouTube, and services.
Further, the company disclosed plans to spend $75 billion on capital expenditures in 2025 as it expands its AI offerings and competes against peers such as Microsoft (MSFT) and Meta (META). Comparatively, Wall Street’s capex estimates for Alphabet were much lower, at $59 billion.
Alphabet emphasized that these investments will help “support the growth of our business across Google Services, Google Cloud and Google DeepMind.”
Is GOOGL Stock Undervalued?
The AI market is forecast to grow at an enviable rate over the next 10 years, and Alphabet’s investments could give the company an early mover advantage. Analysts tracking GOOGL stock expect sales to rise from $350 billion in 2024 to $428.5 billion in 2026. Comparatively, adjusted earnings per share are forecast to expand from $9.03 in 2025 to $11.67 in 2027. So, priced at roughly 21x forward earnings, GOOGL stock is not too expensive, given its earnings growth estimates.
Out of the 50 analysts tracking GOOGL stock, 39 recommend “Strong Buy”, three recommend “Moderate Buy,” and eight recommend “Hold.” The average target price for the tech stock is $218.33, 15% above the current trading price.
