Key Takeaways
- Google unveiled the TPU 8tx and TPU 8i Max on Monday, adding to the 8t and 8i it introduced in April.
- Google Cloud revenue climbed 103% to $30.7 billion in the third quarter, and TPU system sales were a meaningful contributor.
- Free cash flow was negative $9.1 billion as capex more than doubled, while Search growth slowed to 12%.
- The fourth-quarter report, expected in early February, will show whether TPU sales keep growing and how big 2027 capex gets.
Alphabet (GOOGL) introduced two more tensor processing unit systems on Monday, the TPU 8tx and TPU 8i Max. Google’s in-house chips now give buyers a serious alternative to Nvidia (NVDA), the dominant supplier of AI accelerators.
The timing helps. Alphabet shares fell 10% after hours on October 28, when third-quarter results showed $9.1 billion of negative free cash flow.
That same evening, Microsoft (MSFT) rose more than 5% on its own report because its free cash flow beat estimates. Investors rewarded the hyperscaler that could pay for its AI buildout.
So these chips matter more than usual. TPUs are one of the clearest places where Alphabet’s spending already shows up as revenue.
Four TPU systems in one year
Neither system is a brand new chip. Google reconfigured existing eighth-generation silicon for workloads customers kept requesting, chip chief Amin Vahdat told Bloomberg.
Here are the key details:
- TPU 8tx: built for confidential computing at government agencies and regulated industries.
- TPU 8i Max: two TPU 8i chips in one package for long-context AI work.
- Timing: both systems become available next year.
They follow the 8t and 8i that Google unveiled in April. Previously, the chip unit released one new processor every two years, according to Bloomberg.
Vahdat’s case for the faster cadence is simple: “by building specialized versions of the chips, we actually can deliver much more value.”
Customers already seem to be buying in. Just look at Cloud’s trajectory…
Cloud revenue climbed 103% to $30.7 billion in the third quarter, and TPU system sales were a meaningful contributor.
TIKR tracks 62 analysts on Alphabet. How many say “Buy”?
See the full breakdown of Buy, Hold, and Sell ratings on Alphabet, along with Wall Street’s revenue and earnings estimates, all in one place. More than 500,000 investors use TIKR to research stocks like this one. See Alphabet’s Analyst Ratings
Search is losing its pull
Alphabet’s total revenue rose 25% to $127.6 billion, its 13th straight quarter of double-digit growth. Yet the engine underneath is changing quickly.
Google Services grew 11% to $96.3 billion, down from 15% in the second quarter. Search and other revenue rose 12% to $63.4 billion, after 17% growth one quarter earlier.
That slowdown is what rattled holders. With the market worried about AI eating the franchise, investors “need to see search accelerating,” Aptus Capital Advisors portfolio manager Dave Wagner told Reuters.
Meanwhile, profitability softened after a strong second quarter.
Operating margin was 31.8% in the third quarter, down from 34% in the second. Cloud is now big enough to cushion Search, but it cannot replace it yet.
The bill arrives before the payoff
Capital spending hit $51.4 billion in the quarter, up from $24.0 billion a year earlier. Operating cash flow was $42.3 billion, which left free cash flow at negative $9.1 billion. Analysts had expected it to come close to breaking even, LSEG data showed.
How did a cash machine end up here?
It was the second straight negative quarter, and the spending is still climbing. Alphabet held its 2026 capex outlook at $195 billion to $205 billion and expects a significant increase in 2027.
The funding mix has shifted as well. In June, Alphabet announced an $80 billion equity raise, including a $10 billion private placement from Berkshire Hathaway.
My take: The TPU push is the best answer Alphabet has to the cash flow worry, because it turns capex into a product it can sell. But both new systems ship in 2027, so they do nothing for this year’s numbers. Until free cash flow turns positive, I’d expect the stock to trade on spending headlines more than chip launches.
Google expects TPU sales to keep rising this quarter, with a bigger jump in 2027, Bloomberg reported. The next checkpoint is the fourth-quarter report, expected in early February. It should show whether that TPU growth is real and how large the 2027 capex number gets.
So what is Alphabet stock actually worth?
TIKR lets you forecast the future price of any stock in less than a minute. Just enter a few assumptions into TIKR’s valuation model and see what Alphabet could be worth. Start from Wall Street consensus estimates, or adjust the inputs to reflect your own view of the business. It’s free to use.
Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
