There's a good reason to be optimistic about Alphabet's chip opportunities.
There's a good reason to be optimistic about Alphabet's chip opportunities.
Alphabet (GOOG -2.32%) (GOOGL -2.47%) has been a standout success in the artificial intelligence (AI) market. The company's Google Cloud sales are soaring as companies tap Google's AI services, a trend that recently boosted the stock.
And Doug Anmuth, an analyst at J.P. Morgan, thinks there's plenty more room for the stock to run. Anmuth recently raised his price target for Alphabet stock to $425 -- about 23% upside from its current price.
His optimism hinges on Alphabet's ability to accelerate its cloud revenue by selling its custom AI processors to other companies. And he's probably right to be bullish.
Why it's possible Alphabet stock could climb higher on AI chip demand
Alphabet has co-designed its Tensor Processing Units (TPUs) for years to use in its own data centers. But very recently, it also began selling those processors to other AI companies. Custom processors like Alphabet's TPUs are great at running AI agents and specific AI models, and can be more efficient than using GPUs for all AI processing. So, for companies building their own AI infrastructure, it can be beneficial to buy TPUs for their specific AI needs.
And that's where Alphabet's expanding revenue opportunity comes from. Google Cloud sales already soared 82% to $24.8 billion in the second quarter of 2026 as Alphabet sold more AI products and cloud services to enterprise companies. But now that it's also selling AI chips, Anmuth thinks Google Cloud revenue could double in the third quarter.
Investors were already optimistic about Alphabet stock after the company reported its second-quarter results, and any further gains in cloud sales could help push its share price higher.
Alphabet CEO Sundar Pichai said earlier this year, "As TPU demand grows from AI labs, capital markets firms, and high-performance computing applications, we will begin to deliver TPUs to a select group of customers in their own data centers in the hardware configuration to expand our addressable market opportunity."
And it's a great time to begin selling them. AI processor demand is rising quickly, and custom processors are already becoming a larger portion of overall AI processing. TrendForce estimates that while GPU processor sales will grow by 16% over the next year, custom processors will rise by 45%.
Averytin News Financial update.