Nvidia vs. Alphabet: AI’s New Power Struggle

Analyst Highlights Alphabet’s Potential in AI Chips but Criticizes Missed Market Opportunities

As Wall Street searches for alternatives to Nvidia Corp., an unexpected player has emerged in the conversation: Alphabet Inc. (GOOGL, GOOG).

D.A. Davidson analyst Gil Luria has singled out Alphabet for its tensor processing units (TPUs), describing them as the “most compelling alternative to Nvidia GPUs.” TPUs, Alphabet’s proprietary accelerators for machine-learning tasks, are considered “viable, and possibly even superior” to Nvidia GPUs, Luria noted. As an example, he pointed to Apple Inc. (AAPL), which has reportedly leveraged TPUs to train its models.

However, despite his praise for Alphabet’s chip technology, Luria expressed a critical view of the company’s approach to the $4 trillion AI hardware market. He argued that Alphabet isn’t doing enough to capitalize on the opportunity, saying, “The company does not appear to be aggressive enough pursuing the opportunity.”

One major issue, according to Luria, is Alphabet’s restrictive approach to TPUs, which has historically made it difficult for external developers to access and utilize the technology. This has created a “bottleneck” that limits the chips’ broader adoption and commercial potential. By contrast, Nvidia (NVDA) has cultivated a robust developer ecosystem, enhancing the accessibility and appeal of its hardware.

Luria estimated that the combined value of Alphabet’s TPU business and its Google DeepMind AI division could reach $700 billion on a sum-of-the-parts (SOTP) basis. For comparison, Nvidia commands a $3.5 trillion valuation, while Advanced Micro Devices Inc. (AMD), another Nvidia competitor, has a market capitalization of around $200 billion.

To unlock more value, Luria suggested Alphabet should consider restructuring. His SOTP valuation model pegs Alphabet’s total worth at $3.5 trillion, breaking it down as follows: $700 billion for TPUs and DeepMind, $700 billion for Google Cloud, $300 billion for YouTube, and $1.3 trillion for search and networking.

However, Luria cautioned that such valuations are meaningful only if investors begin assessing Alphabet through an SOTP lens. “We are waiting for the company to indicate it is willing to release some of the SOTP value to shareholders,” he wrote.

Luria’s price target for Alphabet stock remains at $200, approximately where it trades now. The company’s current market valuation is $2.46 trillion.

Alphabet did not immediately respond to a request for comment.