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Alphabet Price Target Raised as Google Expands External AI Chip Sales

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GOOGL$348.29 −0.63%GOOG$344.86 −0.72%

Alphabet Inc. (NASDAQ:GOOGL) shares rose 0.81% to $350.50, and its Class C shares (NASDAQ:GOOG) also gained 0.81% to $347.40, following an analyst price-target increase to $417 from $411. The target upgrade was driven by growing expectations for Alphabet's custom artificial intelligence chips, known as Tensor Processing Units, or TPUs. The company is expanding its business by selling these chips directly to selected customers for use in their own data centers, rather than restricting them to Google's cloud platform.

This strategic shift allows Alphabet to capture artificial intelligence spending from organizations that prefer to keep their computing infrastructure in-house. Analysts estimate external TPU sales will reach $9.2 billion in the third quarter and rise to $11.5 billion in the fourth quarter. While the new price target represents a modest 1.5% increase over the previous estimate, it implies significant upside from recent trading levels, even as the stock trades above some third-party valuation estimates of $253.69.

Moving forward, investors will need to monitor the hardware margins and customer-support costs associated with these external chip sales. These metrics will be critical in determining how much of the projected hardware revenue actually translates into net income for the company.

Key points

  • Analysts raised Alphabet's price target to $417 from $411 due to higher expected sales of its custom AI chips.
  • Google plans to sell its Tensor Processing Units directly to selected customers for use in their own data centers.
  • External chip sales are projected to reach $9.2 billion in the third quarter and $11.5 billion in the fourth quarter.
  • Investors will need to monitor hardware margins and support costs to see how much revenue reaches the bottom line.

Written by our AI from expert market sources across the web. It can contain mistakes: check the facts before acting on them. Write-ups powered by the free AI API at FreeTheAI.org

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Questions and answers

Why did analysts raise Alphabet's price target?

Analysts increased the price target to $417 from $411 due to higher expectations for external sales of Google's custom artificial intelligence chips, known as Tensor Processing Units.

How much revenue is Google expected to generate from external chip sales?

External sales of the custom chips are projected to reach $9.2 billion in the third quarter and $11.5 billion in the fourth quarter.

What is Google's new strategy for its Tensor Processing Units?

Google plans to supply its custom chip hardware directly to selected customers' own data centers, allowing them to use the hardware even if they keep their computing infrastructure under their own roof.