Google's TPU Sales Boost GOOGL and AVGO: Time to Buy?

For years, Google's custom AI chips, called tensor processing units (TPUs), were only available for rent through Google Cloud. That changed in the second quarter when Alphabet began delivering TPU systems directly to customer data centers and recognizing revenue from those sales. The dollar amounts are small so far, with most revenue expected in 2027, but it marks a significant new product line for a $4 trillion company.

Broadcom is a key beneficiary. In April, it signed a long-term agreement to develop and supply custom TPUs for Google's future generations, plus a second deal to provide networking components through 2031. This means Broadcom gets paid on TPUs regardless of where they end up—Google's own data centers, its cloud, or customer facilities. On Broadcom's latest earnings call, CEO Hock Tan noted that AI company Anthropic plans to deploy another 5 gigawatts of next-generation TPU capacity in 2027, after 1 gigawatt this year.

The financial momentum is already visible. Broadcom's AI semiconductor revenue hit $16.7 billion in its fiscal third quarter, up 221% year over year and 54% sequentially. Management guided for about $21.7 billion in the fiscal fourth quarter, which would represent 236% growth. Total revenue rose 86% to $29.6 billion, and free cash flow nearly doubled to $13.7 billion.

Alphabet, meanwhile, earns on TPU sales in a way no chipmaker can: it books the hardware, software, installation, and support revenue while keeping the buyer as a Google customer. Google Cloud revenue grew 82% year over year to $24.8 billion in the second quarter, with operating margin expanding from 21% to 36%. The cloud backlog, which includes TPU sales agreements, surged by over $50 billion sequentially to $514 billion.

Both companies are investing heavily. Alphabet raised its 2026 capital expenditure guidance to $195–$205 billion. Broadcom's top five customers account for about 55% of revenue, a concentration risk. Yet both stocks trade well below their 52-week highs—Broadcom down 31% and Alphabet down 16%—while their AI revenue accelerates.

The move transforms Google from a cloud provider that rents AI capacity into a hardware vendor that sells complete AI systems. This opens a new revenue stream with higher upfront recognition and deepens customer relationships. For Broadcom, it locks in a multi-year, high-growth revenue pipeline tied to Google's TPU roadmap, with additional upside from other AI customers like Anthropic.

The numbers show this is not a niche experiment. Broadcom's AI semiconductor revenue is growing at triple-digit rates and now represents a substantial portion of its business. Alphabet's cloud backlog of $514 billion—up $50 billion in a single quarter—signals massive future revenue, much of it tied to AI infrastructure. Both companies are effectively selling picks and shovels in the AI gold rush.

Valuations look attractive relative to growth. Broadcom trades at about 18 times forward earnings, while Alphabet trades near 23 times. Both are below their recent highs, creating a potential entry point. The risk is that hardware sales carry lower margins than software or advertising, and customer concentration could lead to volatility if a major client changes plans.

Still, the direction is clear: AI infrastructure spending is accelerating, and these two companies are positioned to capture a significant share. For investors, the pullback offers a chance to buy into a secular growth trend at a reasonable price.