Alphabet’s AI Chips Show Potential, But Analyst Says Company Misses the Mark on AI Hardware Opportunity
Wall Street continues to explore alternatives to Nvidia Corp., and one analyst has spotlighted an unexpected contender: Alphabet Inc. (GOOGL, GOOG).
D.A. Davidson analyst Gil Luria recently identified Alphabet as having the “most compelling alternative to Nvidia GPUs,” crediting its tensor processing units (TPUs). These accelerators are designed for machine-learning tasks and, according to Luria, could be a “viable, and possibly even superior” option to Nvidia GPUs. Apple Inc. (AAPL) has reportedly chosen Alphabet’s TPUs to train its models, further supporting this claim.
Despite praising Alphabet’s chip technology, Luria maintains a neutral rating on the stock and is critical of the company’s approach to the $4 trillion AI hardware market. He argues that Alphabet isn’t aggressive enough in capitalizing on the opportunity, noting the company has historically restricted external developers from effectively accessing and utilizing TPUs, creating a “bottleneck” that stymies their commercial potential.
By contrast, Nvidia (NVDA) has fostered a “robust” developer ecosystem, making its hardware more accessible and appealing.
Luria estimates that Alphabet’s TPU business, combined with its Google DeepMind AI division, could be worth $700 billion on a sum-of-the-parts (SOTP) basis. For perspective, Nvidia boasts a $3.5 trillion valuation, while Advanced Micro Devices Inc. (AMD), another Nvidia rival, is valued at approximately $200 billion.
Beyond developer accessibility, Luria suggests that Alphabet could unlock greater value by breaking up its business. His SOTP valuation model assigns Alphabet a total value of $3.5 trillion, attributing $700 billion to TPUs and DeepMind, $300 billion to YouTube, $700 billion to Google Cloud, and $1.3 trillion to its search and networking operations.
However, he notes that a SOTP valuation only holds weight if investors begin evaluating Alphabet in those terms. “We are waiting for the company to indicate it is willing to release some of the SOTP value to shareholders,” Luria wrote.
Luria’s price target for Alphabet’s stock is $200, roughly in line with its current trading value. Alphabet’s current market capitalization stands at $2.46 trillion.
Alphabet did not immediately respond to a request for comment from MarketWatch.
