Alphabet said Oracle will offer Google's tensor processing units, the first time customers can access the chips outside Google's infrastructure. The move pushes Google deeper into a market Nvidia has dominated, though analysts flag a margin cost.
Google is enlisting Oracle to sell its AI chips, a shift from years of pitching customers on buying chips, models and cloud services in one place. Alphabet said on Tuesday, a day ahead of its third-quarter earnings report, that Oracle will offer its tensor processing units, or TPUs.
It is the first time customers will be able to access TPUs outside of Google's infrastructure. Cloud boss Thomas Kurian, who previously spent more than 20 years at Oracle, is looking elsewhere for growth.
TPU sales forecasts diverge
Google opened up TPUs to outside data centers in the second quarter, before this week's Oracle announcement. Estimates for the TPU business vary widely, but they all point to significant growth.
TD Cowen models $9.4 billion in TPU sales for the second half of this year and $62.5 billion for 2027. Wells Fargo expects about $9 billion in third-quarter sales and $99 billion next year.
Google also trails its rivals in cloud revenue. It posted $25 billion in the second quarter, against $42 billion for Amazon Web Services and $29 billion for Microsoft Azure. But analysts expect Google Cloud revenue to jump about 90% from a year earlier, after 82% growth in the second quarter.
External sales carry a margin cost
Selling TPUs outside Google comes with a trade-off. TD Cowen estimates a 20% operating margin on TPU sales, compared with an overall cloud margin of about 35% last quarter. Uday Cheruvu, a portfolio manager at Harding Loevner, said he doesn't think Google's cloud operating margin could widen much beyond the mid-30s.
Meanwhile, SemiAnalysis estimates that Google's latest Ironwood TPU costs about 44% less to own and operate than an Nvidia GB200 server.
Anthropic is the biggest TPU customer
Google's biggest TPU customer is one of its top AI competitors. Anthropic agreed last October to use up to 1 million TPUs in a deal worth tens of billions of dollars. OpenAI is also planning to buy TPUs from Google, CNBC confirmed after The Information first reported it.
Anthropic is getting outside help to pay for the chips. Broadcom this week detailed a $63 billion vehicle backed by Blackstone and three big banks that will buy TPUs and networking gear and lease them to Anthropic for five years.
Source: CNBC
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