Google Expands Merchant Silicon Business, Boosts Revenue Growth

Google's merchant silicon business is quietly expanding its reach by delivering custom TPU systems directly to customer data centers, marking a significant shift in its business model. This move feeds into the Google Cloud segment, which has been compounding at an astonishing rate of 82%.

The company's revenue growth, net margin trajectory, and valuation multiple are the three key drivers of Alphabet's (GOOGL) stock price movement over the next three years. Under conservative assumptions, revenue compounding is doing the most heavy lifting, contributing 60% to the price move.

However, the new TPU system revenue provides a high-growth stream for 2027, which could tilt the levers higher. On the other hand, the core business faces tougher comparisons after a period of strong results, particularly in Search performance, which sets a high bar for future growth.