Morgan Stanley: Google’s TPU External Sales could Reach 1 Million Units by 2027

Against the backdrop of divergent trends in the U.S. tech sector fueled by concerns over an “AI bubble”, Alphabet, the parent company of Google, has defied the odds with a recent surge in stock price, climbing nearly 20% over the past month and becoming the hottest large-cap AI stock.

On one hand, Google’s newly launched large model, Gemini 3, has received overwhelming acclaim, while on the other hand, its self-developed AI chip—TPU (Tensor Processing Unit)—is drawing significant attention from the capital markets.

This week, reports emerged that Google is actively promoting its TPU to customers, with Meta considering spending billions to purchase Google’s TPU for data center construction. This marks a significant strategic shift for Google, as its TPU was previously primarily used internally within its own cloud data centers.

Impact on Google

Morgan Stanley believes this may bring a modest boost to the tech giant’s sales and profits.

“The extent to which Google sells TPU chips externally through its first-party model will indeed have a significant impact on its performance. Our sensitivity analysis shows that for every 500,000 TPU chips sold externally, Google could see an upside of approximately $13 billion (or 11%) in its 2027 cloud revenue forecast, along with a roughly 3% increase in its 2027 earnings per share (EPS), or about $0.37.” — a team led by Morgan Stanley analyst Brian Nowak wrote in a client report.

Analysts explained that if Google’s cloud business accelerates its growth and the company successfully enters the semiconductor market, “this is likely to drive (or support) higher valuation multiples for Google.”

Additionally, analysts pointed out that considering NVIDIA’s projected shipment of approximately 8 million GPUs (graphics processing units) by 2027, if production capacity permits, Google’s forecast of selling 500,000 to 1 million TPUs (tensor processing units) annually is “not unreasonable”.

However, analysts also emphasize that Google’s strategy for promoting its TPU externally remains highly uncertain, and investors need to focus on three key issues: its business model, pricing strategy, and the types of workloads TPU can handle.

Impact on semiconductor industry

Regarding the impact of Google’s external sales of TPU on the semiconductor industry, analysts believe this will benefit Broadcom, as the company co-designed the TPU chip with Google, while the effects on NVIDIA and AMD will be minimal.

This has to some extent eased the concerns surrounding Nvidia in the market. With the emergence of Google TPU chips, investors are worried that Nvidia’s AI chip market share will be eroded. Google TPU outperforms GPU in specific scenarios – Nvidia holds an absolute dominant position in this field.

Morgan Stanley analysts pointed out that since the beginning of this year, Google has purchased approximately $20 billion from Nvidia (chips) in the development of large-scale language models, while spending on TPU is only over $1 billion. This spending structure may be slightly adjusted next year, but the overall demand growth for AI chips is unlikely to see a “winner takes all” situation.

“Even if the Gemini model surpasses GPT-5 to become the leading model, it does not mean that competitors will slow down as a result – as technology industry leaders have repeatedly emphasized, this competition is crucial, and we expect the competition to continue to heat up, especially with the rule of scale still in effect.” They said.