Alphabet has started booking revenue from selling its custom Tensor Processing Units to outside customers, a shift disclosed on its second-quarter earnings call that puts the search giant in direct competition with Nvidia. Broadcom, which co-designs the TPUs under a deal running through 2031, stands to gain if the business keeps growing.
Alphabet began recording revenue from external sales of its Tensor Processing Units during its second-quarter earnings call, a move that puts the company in direct competition with Nvidia. Broadcom, which has separately worked with Alphabet to design the TPUs, also stands to gain from the shift.
Alphabet turns TPUs into a new revenue stream
During the call, Alphabet management announced that revenue from TPU sales to outside customers had started flowing in. Months earlier, Sundar Pichai said the company would begin selling TPUs to select outside customers, citing soaring demand for the chips. The disclosure came alongside a strong quarter for Google Cloud, whose sales reached $24.8 billion, 82% higher than the year-ago period. That marked an acceleration from 63% growth in the previous quarter. The cloud unit also carries a $514 billion backlog.
Custom chips squeeze Nvidia's edge
TPUs are cheaper than Nvidia's graphics processing units and highly effective at handling the specific workloads they are designed for, giving cloud customers an alternative to Nvidia hardware. Buying TPUs can also help companies reduce their exposure to Nvidia, a perk the report described as going beyond the cost savings alone.
Broadcom's long-term stake
Broadcom has worked with Alphabet to design the TPUs under a partnership that extends through 2031, so the chips' commercial rollout carries direct upside for Broadcom too. If Alphabet's TPU sales grow at a good clip, that would be good for Broadcom's business as well, according to the report.
For now, TPU sales likely make up a minuscule part of Alphabet's total revenue, and whether the business becomes a meaningful growth driver remains uncertain.
Source: The Motley Fool
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