Amid reports that Google (GOOG) (GOOGL) is in discussions to sell its tensor processing units to Meta (META), Morgan Stanley believes it could be a moderate boost to the tech giant’s sales and earnings.
“The extent to which GOOGL sells TPUs through a [first-party] model can indeed move the needle, as our sensitivity work shows that every ~500k chips they sell externally could represent $13bn (~11%) upside to our above Street ’27 Google Cloud Revenue estimates and ~3% ($.37) upside to ’27 GOOGL [earnings per share],” Morgan Stanley analysts, led by Brian Nowak, wrote in a note to clients.
If Google’s cloud growth were to accelerate and the company could see an expansion into the semiconductor market, that would “likely lead to (or support) a high multiple on GOOGL (as we have observed in [the] past couple months),” the analysts explained.
The analysts added that a sales forecast of 500,000 to 1M for Google may not be “unreasonable,” given that Nvidia (NVDA) is expected to ship around 8M GPUs in 2027, assuming the capacity is there.
Delving deeper, the analysts said the strategy around Google’s external push for its TPUs is still a big unknown, with three key questions for investors: its business model; pricing; and the workloads the TPUs are capable of handling.
There’s also the implications for how Google’s external TPU sales push impacts semiconductor companies. According to the analysts, the belief is that it will benefit Broadcom (AVGO), which co-designs Google’s TPUs and have little, if any impact on Nvidia and AMD (AMD).
“As far as Google’s success on the LLM side, we think Nvidia has gained share at Google this year,” the analysts added. “With Google spending about $20bn or so on Nvidia vs. spending in the teens on TPU. That will shift back next year to some degree, but we don’t expect growth to be winner-take-all. For now, we don’t think having Gemini overtake GPT-5 as the leading model means competitors will slow down, as we’ve heard time and time again from leaders in the tech industry how important this race is, and we expect it to remain competitive — especially as scaling laws seem to be intact.”