Should You Buy Alphabet Stock Now That Google Will Let Customers Run Its AI Chips in Their Own Data Centers?

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Learn more Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG) just gave its custom artificial intelligence (AI) chips another way to reach customers. On Monday, Nov. 9, Google Cloud announced…

Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG) just gave its custom artificial intelligence (AI) chips another way to reach customers. On Monday, Nov. 9, Google Cloud announced two new versions of its tensor processing units (TPUs) -- chips Google designs to train and run AI models. And Google Cloud vice president Mark Lohmeyer told reporters that select customers will be able to install one of them, the TPU 8tx, in their own data centers.

For most of their history, the only way to use a TPU was to rent one in Google's cloud. This changed in the second quarter, when Alphabet started booking revenue on TPU systems it sold to customers running their own data centers. Google now says almost 100 customers use the chips.

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Meanwhile, Alphabet shares trade near $292 as I write. Its record close was on May 13, at $402.62, which puts the stock about 28% under that peak.

Most of the revenue from those chip sales won't arrive until 2027, and Alphabet pays for the hardware first. But I think the move makes the long-term case for the stock a bit stronger.

The TPU 8tx is made for confidential work. Google says it's designed for regulated firms and governments running AI alongside their most sensitive data, and it protects that data even as the chip is processing it. (Usually, data needs to be unlocked in memory as a computer works on it.)

Google Cloud CEO Thomas Kurian described the appeal on Alphabet's third-quarter earnings call in late October.

"For some industries, they have data in their premise that they cannot move to a cloud, and it allows us to bring accelerated compute to where the data sits," Kurian said.

Put another way, on-site TPUs can reach customers Google's cloud can't fully serve.

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