TLDR
- Morgan Stanley says Google could generate $200B in revenue from its custom TPU chips over the next few years
- Analyst Brian Nowak raised TPU price estimates to $27bn/GW with a 30% gross margin, up from $20bn/GW at 20%
- Morgan Stanley projects $84bn and $108bn in TPU-related Google Cloud revenue in 2027 and 2028
- GOOGL carries an average analyst rating of “Buy” with a consensus price target of $420.19
- Institutional investors including Vanguard and Norges Bank have been adding to their GOOGL positions
Alphabet’s (GOOGL) stock opened at $348.06 on Tuesday and ticked up around 0.9% in early trading after Morgan Stanley raised its outlook on the company’s custom chip business.
Morgan Stanley analyst Brian Nowak said Google could generate around $200 billion in revenue tied to its tensor processing units (TPUs) over the coming years. That’s a big number, and Nowak laid out exactly how he got there.
The key update is pricing. Nowak raised his TPU selling price estimate to $27bn per gigawatt, up from a previous assumption of $20bn/GW. He also lifted his gross margin assumption to 30%, from 20%.
Recent reports pointed to Google committing to supply around one million TPUs for roughly $35 billion. Nowak said that lines up with higher-than-expected pricing on the chips.
An expanded custom silicon agreement between Google and Marvell also factored into the revised estimates, with Nowak’s team seeing that deal as consistent with stronger TPU pricing.
Cloud Revenue Projections
On the back of those updated figures, Morgan Stanley now expects Google to sell 0.3 gigawatts of TPU systems in the second half of 2026, 3.2 gigawatts in 2027, and 4.2 gigawatts in 2028.
That translates into $84 billion and $108 billion in TPU-related Google Cloud revenue in 2027 and 2028, respectively.
Nowak kept his Overweight rating on GOOGL and holds a $400 price target on the stock.
GOOGL’s 50-day moving average sits at $351.57, while its 200-day moving average is $341.41. The stock has traded between $205.28 and $408.61 over the past 12 months.
Analyst Ratings and Institutional Activity
Across Wall Street, the stock has broad support. Six analysts rate it Strong Buy, 44 have it at Buy, and four have it at Hold. The consensus price target is $420.19.
Guggenheim has a $450 price target on the stock, while Arete Research lifted its target to $425 in May. JPMorgan reiterated a Buy rating in May as well. Zacks moved the stock to Hold in August.
On the institutional side, Vanguard lifted its stake by 2.4% in Q4, bringing its total to over 528 million shares valued at around $165.6 billion. Norges Bank opened a new position worth approximately $30.5 billion in Q4.
North Dakota State Investment Board also raised its position by 2.0% in Q2, bringing its holding in GOOGL to 171,763 shares worth $61.4 million.
Alphabet’s most recent quarterly earnings, reported July 22nd, came in at $9.11 EPS, well above the $2.89 consensus estimate. Revenue for the quarter was $119.80 billion, topping analyst estimates of $117.07 billion. The company has a quarterly dividend of $0.22 per share, payable September 14th.
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