Alphabet Sells Custom AI Chips to Customers as Revenue Accelerates

Alphabet, the parent company of Google, has started selling its custom AI chips, called tensor processing units (TPUs), to customers in the second quarter. This marks a change from renting TPUs through Google Cloud, and Alphabet is now recognizing revenue from these sales.

The dollars are still small, but Alphabet signed only a limited number of agreements with customers that run their own infrastructure for specialized AI workloads. The significant majority of the revenue from those deals will arrive in 2027.

Broadcom develops and supplies the chips used by Alphabet's TPUs, and it has long-term agreements to develop and supply custom TPUs for Google's future generations of the chips. In addition to supplying the chips, Broadcom also provides networking and other components for Google's next-generation AI racks through up to 2031.

Broadcom's AI semiconductor revenue rose 221% year over year to $16.7 billion in its latest quarter, with management guiding for about $21.7 billion of AI semiconductor revenue in the fiscal fourth quarter. This growth is accelerating, not slowing down.