Alphabet's TPU Advantage Drives Cheapest Growth Story in Mega-Cap Tech

Alphabet's stock price has been a subject of interest for investors and analysts alike. After experiencing its longest monthly losing streak in over a decade, Alphabet's valuation has become an attractive opportunity for investors. One reason behind this is that Alphabet is the only hyperscaler running its foundation models on proprietary silicon while also renting that silicon to everyone else.

The company's Google Cloud business grew 82% year-over-year in Q2 FY26, with a backlog nearly doubling quarter-over-quarter to over $460 billion. This growth can be attributed to Alphabet's Tensor Processing Units (TPUs), which allow the company to run Gemini inference on its own TPUs while also selling TPU capacity to cloud customers.

The TPU stack is seen as a moat that gives Alphabet higher returns than its competitors, such as NVIDIA, which rent out their chips. With a P/E of 15 and a 24% year-over-year revenue compounding rate, Alphabet's valuation looks like a mispricing. However, there are concerns about the company's capital expenditures, which guided $175 billion to $185 billion in 2026.

Analysts are lining up to call this the cheapest growth story in mega-cap tech, with an average target price of $428.07 and a consensus EPS of $20.60 across 53 analysts. The stock's performance has been impressive, with a 48.9% increase over the past year versus 20.11% for the S&P 500.