Is Alphabet Moving in on Nvidia's Territory?

Nvidia (NASDAQ: NVDA) has long been the "go-to" source for the top-performing artificial intelligence (AI) chips. The company's graphics processing units (GPUs) fuel unavoidable AI tasks, like the training of models or the inference process that guides them through problem-solving. All of this has pushed Nvidia to double- and triple-digit earnings growth in recent quarters -- and it's pushed the stock to a 600% gain over three years.

Though Nvidia dominates this chip market, it isn't the only game in town. Many others, from dedicated chip designers like Advanced Micro Devices to major tech companies like Amazon, also compete in the space. So far, Nvidia, thanks to its first-to-market moves and commitment to innovation, has stayed ahead of rivals.

But now, with a recent move, is Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) moving in on Nvidia's territory? Let's find out.

Image source: Getty Images.

Alphabet's position in AI

So, first, let's take a look at Alphabet's position right now in the world of AI. The company is the developer of well-known large language model (LLM) Gemini, and this innovation is supercharging its Google Search business and improving the advertising experience across Google. This is key because ads generate the lion's share of Alphabet's revenue.

But there's a lot more to Alphabet's AI work than just one LLM. Alphabet's Google Cloud offers customers a wide range of AI products and services, including chips and systems from Nvidia as well as Alphabet's own in-house designed tensor processing units (TPUs). Yes, you heard that right -- Alphabet designs chips, so while it's an Nvidia customer, it's also a competitor.

GPUs and TPUs both accelerate AI tasks, but they aren't exactly the same -- GPUs are more general-purpose, while TPUs are specialized for particular tasks. Alphabet uses these TPUs within its own systems, for example, as part of the platform powering Google Search, but it also makes them available to cloud customers. Anthropic last fall expanded its partnership with Google for the use of up to one million TPUs.

Google TPUs so far have been designed for training and inference, but last month the company said it would release two separate TPUs later this year -- one specialized for training and the other for inference.

Now, let's consider Alphabet's latest move. Blackstone and Google are joining forces to create a new AI infrastructure company. As the world's biggest private owner of data centers, Blackstone is well-positioned to take on such an effort -- the investment management company aims to make a $5 billion equity commitment to the endeavor to bring 500 megawatts of capacity online in 2027.

The "new TPU cloud"

In Blackstone's press release, the company referred to the project as the "new TPU cloud." Google will provide hardware, such as TPUs, as well as software and services to the company.

So, moving forward, customers may access TPUs as in the past through Google Cloud or through this new entity -- Blackstone and Alphabet haven't yet revealed the company's name.

Let's get back to our question: With this move, is Alphabet moving in on Nvidia's territory? It's true that the Blackstone partnership surely will increase the sales and use of Google's TPUs -- and that's fantastic news for Alphabet. But I don't necessarily see it as a move that will seriously hurt Nvidia or weigh on market share. For a couple of reasons.

It's important to note that the level of demand for AI workloads is extremely high, and in many cases, exceeds supply, so there are opportunities for more than one company to grow and succeed in the chip business. Meanwhile, since GPUs and TPUs offer different advantages, they won't directly compete in many cases -- customers often use a variety of solutions, so they might choose GPUs for some projects and TPUs for others.

Finally, Nvidia's strong focus on innovation, with annual chip updates as well as other new creations -- for example, it recently released its AI model family for quantum computing -- should keep the company at the forefront. All of this means that, while the Blackstone deal is great news for Alphabet and its shareholders, it doesn't suggest this company is set to beat Nvidia.

Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, and Nvidia. The Motley Fool has a disclosure policy.