Alphabet Starts Selling AI Chips to Customer Data Centers

Alphabet has started selling its custom artificial intelligence (AI) chips, known as tensor processing units (TPUs), to customer data centers for the first time. This marks a significant shift in the company's business strategy, as it previously only rented out these chips through Google Cloud.

The sales are still relatively small, with Alphabet signing only a limited number of agreements so far. However, the revenue generated from these deals is expected to grow significantly in 2027, with the majority of the significant revenue from those deals arriving then.

Two companies that stand to benefit from this new development are Broadcom and Alphabet itself. Broadcom develops and supplies the chips, and will receive payment regardless of where they are used - whether it's in Google's own data centers, its cloud, or a customer's facility.

Broadcom's AI semiconductor revenue grew 143% year-over-year to $10.8 billion in its fiscal 2026 second quarter, and has continued to accelerate, with management guiding for about $21.7 billion of AI semiconductor revenue in the fiscal fourth quarter - a growth rate of 236%. The company's total revenue rose 86% year-over-year to $29.6 billion, and free cash flow nearly doubled to $13.7 billion.

Alphabet, on the other hand, earns revenue from both the sale of TPU systems and the rent of TPUs through Google Cloud. In the second quarter, Alphabet's cloud revenue grew 82% year-over-year to $24.8 billion, with profitability improving even faster.