Alphabet (GOOG, Financial), achieving a new peak in its share price, is intensifying its foray into in-house chip production, a move that has seen its stock soar to all-time highs. This strategic pivot aims to expand beyond its inaugural semi-custom mobile chip, Tensor, introduced with the Google Pixel 6 in 2020. The upcoming chip, named Axion, is designed to enhance cloud AI workloads, marking a significant step in Alphabet's journey towards self-reliance in semiconductor production.
By reducing its dependency on external chip manufacturers, Alphabet is following in the footsteps of tech giants like Apple (AAPL, Financial) and Microsoft (MSFT, Financial), both of which have ventured into creating their proprietary chips for specific uses. Alphabet's initiative is not intended to compete directly with established chipmakers such as Intel (INTC, Financial) and NVIDIA (NVDA, Financial) but to coexist within the AI technology space, emphasizing collaboration over competition.
• Alphabet's approach involves designing chips and partnering with manufacturers like Taiwan Semi (TSM, Financial) for production, focusing on efficiency and AI integration.
• The new Axion chip will utilize Arm's architecture, promising superior performance and will likely be manufactured by TSM, contributing to the latter's stock performance.
• This strategic shift could position Alphabet in direct competition with AI chip leaders like NVDA, AMD, and INTC, potentially impacting the market dynamics for AI chips.
• Suppliers such as Broadcom (AVGO, Financial) and Qualcomm (QCOM, Financial) stand to gain from Alphabet's expanded in-house chip production, given their existing partnerships and contributions to the Tensor chips.
Alphabet's move towards more in-house production is poised to streamline its supply chain, mitigate dependency on external chip suppliers like NVDA, and enhance operational efficiencies. By leveraging Arm's architecture, Alphabet is aligning its technology with that of other cloud service providers like Amazon (AMZN, Financial) and MSFT, facilitating easier adoption of its chips. This strategic direction not only solidifies Alphabet's position in the AI race but also underscores its commitment to innovation and self-sufficiency in technology.
