This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Key Points
- Nvidia's dominance throughout the artificial intelligence (AI) revolution stems largely from its GPU business.
- Alphabet has its own custom chips -- TPUs -- that are utilized by notable companies such as OpenAI and Anthropic.
- Wall Street estimates that Alphabet has a $900 billion opportunity thanks to its TPUs.
For the past three years, one name has stood out as the undisputed leader in high-performance chips: Nvidia. Its graphics processing units (GPUs) power the backbone of generative artificial intelligence (AI), enabling large language models (LLMs) and driving advancements in next-generation use cases across autonomous systems and robotics.
While the notion of dethroning Nvidia in the chip realm might seem far-fetched, one "Magnificent Seven" rival is beginning to challenge its dominance. Enter Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL). Best known for Google and YouTube, the company is quietly building momentum through its artificial intelligence businesses.
In the discussion below, I'll examine how Alphabet is positioning itself to disrupt Nvidia's leadership in AI chips and consider whether the internet giant could soon deliver a "checkmate" to the market's biggest beneficiary of the AI boom.
Alphabet's secret weapon in cloud computing
At the center of Alphabet's push against Nvidia are its custom-designed, application-specific integrated circuits (ASICs) known as tensor processing units (TPUs). These chips have become a cornerstone of Google Cloud Platform (GCP) where they serve as a differentiator in an intensely competitive market dominated by Microsoft Azure and Amazon Web Services (AWS).
In recent months, Google Cloud has secured high-profile wins with companies such as OpenAI and Meta Platforms. Industry reports also suggest that TPUs have played a decisive role in attracting other AI leaders, including Anthropic and Safe Superintelligence, further reinforcing Alphabet's position in the AI infrastructure race.
How big of an opportunity is custom silicon for Alphabet?
By housing both research (DeepMind) and hardware (TPUs) under one roof, Alphabet has created a vertically integrated ecosystem capable of building, training, and deploying AI models and services through the Gemini and Google Cloud platforms.
In a recent research note, Gil Luria of D.A. Davidson estimated that if Alphabet were ever to spin off the DeepMind and TPU businesses, the combined value of these assets could approach $900 billion -- up from an estimate of $717 billion earlier this year.
While these figures are speculative, it implies that Alphabet may be sitting on a near trillion-dollar opportunity -- one that might otherwise have gone to Nvidia.
Is Alphabet about to dethrone Nvidia?
To assess whether Alphabet truly has Nvidia on the defensive, it's important to understand the difference between GPUs and TPUs.
GPUs are designed as highly versatile processors: They can handle parallel computations, which makes them ideal for rendering graphics or running large-scale AI workloads. Their flexibility is what has made them the backbone of AI development to date.
On the other hand, TPUs are far more specialized. They are optimized for neural networking applications, particularly deep learning and inference. This specialization allows TPUs to deliver high performance for machine learning models. Critically, though, they lack the broad utility of GPUs across more diverse workloads.
Another critical factor behind Nvidia's dominance is its CUDA software platform. The seamless integration of its GPUs with CUDA's parallel programming environment has given Nvidia a powerful competitive edge, creating a durable technological moat that makes switching to competing platforms highly unlikely.
Against that backdrop, Google's TPUs have certainly reshaped the competitive landscape, offering businesses a specialized alternative for certain applications. However, TPUs represent more of a complementary option to Nvidia's comprehensive services rather than a true substitute.
In other words, while Alphabet has placed an intriguing piece on the chess board, it has not maneuvered Nvidia into a checkmate position.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
