Here’s why Google’s TPUs could be a bigger threat to Nvidia<\/a> than investors might think.<\/p>\n A person looking at a tablet.<\/p>\n Image source: Getty Images.<\/p>\n Custom processors are really good at AI compute<\/p>\n It used to be that graphics processors were the hands-down winners for all things artificial intelligence.<\/p>\n But what AI companies have found recently is that designing their own custom processors can be a great way to achieve fast and efficient AI computing.<\/p>\n For example, Google’s TPUs can handle AI workloads at an estimated total cost savings of up 30% compared to using chips made by other hyperscalers. That’s because the custom processors can be designed specifically for how its Gemini AI model processes information.<\/p>\n Alphabet is spending up to $190 billion in capital expenditures this year, and management has said, “Next year, we expect it to significantly increase compared to 2026.” Drastically reducing AI compute costs could help Google eventually run its AI data centers far more efficiently, and make its massive AI investments eventually worth the high cost.<\/p>\n And Google<\/a> isn’t the only one doing this. Many tech companies are looking more to custom processors to make their AI models more efficient and reduce costs. Space Exploration Technologies (NASDAQ: SPCX) is building what some are calling a “sovereign AI”<\/a> in which SpaceX owns everything from the chip design and manufacturing to the AI model itself. And others, like Amazon and Microsoft, are designing their own AI processors as well.<\/p>\n All of which means that Nvidia could lose its dominance in the AI chip design market. It’s not inevitable, of course, but as AI investments have skyrocketed, tech giants are trying to figure out how to make these investments pay off.<\/p>\n Why Nvidia can’t take this lightly<\/p>\n Google announced a few months ago<\/a> that it’s starting a joint venture with Blackstone to deploy 500 megawatts of its own TPU capacity by 2027 and added that it has “plans to scale significantly over time.”<\/p>\n That level of capacity shows Google is serious about using its TPUs as more than just a pet project.<\/p>\n What’s more, it plans to rent some of that capacity to other tech companies. This system is called a neocloud business model, in which a tech company uses its own processors and data center and rents some of its capacity out to others. The rapidly expanding neocloud market could take 20% of the AI cloud market<\/a> by 2030.<\/p>\n If more tech companies pivot to renting out Google’s TPUs, or using their own processors, it will not only hurt Nvidia’s market share in the AI data center space — currently around 86% — but it could also bring Nvidia’s margins down.<\/p>\n Nvidia enjoys an enviable gross profit margin of about 74%, but with more competition looming from Google’s TPUs, it might not be that long before Nvidia can’t command the same pricing power it once did. And that could be one of the biggest threats to Nvidia’s dominance in a long time.<\/p>\n Should you buy stock in Alphabet right now?<\/p>\n Before you buy stock in Alphabet, consider this:<\/p>\n The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks<\/a> for investors to buy now\u2026 and Alphabet wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.<\/p>\n Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $395,679!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,294,805!*<\/p>\n Now, it’s worth noting Stock Advisor’s total average return is 929% \u2014 a market-crushing outperformance compared to 211% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.<\/p>\n See the 10 stocks \u00bb<\/a><\/p>\n *Stock Advisor returns as of July 12, 2026.<\/p>\n Chris Neiger<\/a> has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool has a disclosure policy<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"Key Points Google could lower its AI compute costs by up to 30% using its own processors. 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