No one knows exactly what the next phase of artificial intelligence (AI) will be, but there are some early indicators of what both large and small tech companies are shifting toward. The first is more diversification in AI hardware. The second is increased incorporation of AI software that's useful and works well with existing tech tools.
Both of these ideas could define the next phase of AI, as companies strive to position themselves as leaders in an increasingly competitive AI landscape. And while there are plenty of companies that will benefit, I think Alphabet (GOOG +1.08%) (GOOGL +1.09%) is uniquely positioned.
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Alphabet could sell 1 million AI chips by 2027
Alphabet has, for years, developed its own artificial intelligence processors. The company's custom-built Tensor Processing Units (TPUs) have been utilized in its data centers to aid in training its AI. Alphabet has, up until now, only used the chips for its own purposes.
But that may be about to change. A report from The Information says that Meta Platforms may be interested in buying some of Alphabet's processors for its own data centers -- a deal that could potentially be worth billions of dollars.
That's significant even as Nvidia (NVDA 0.53%) dominates the AI processor market, with an estimated 90% of the data center market running graphics processing units (GPUs). But even Nvidia seems to be a little nervous about Alphabet's chip prospects. When the rumors of Meta's potential Alphabet chip purchase surfaced, the company posted on X that it was "delighted by Google's success" but added, "NVIDIA is a generation ahead of the industry -- it's the only platform that runs every AI model and does it everywhere computing is done."
The timing of Nvidia's post and the company reminding everyone that it's far more advanced than the competition comes across as a little nervous.
And perhaps it should be. Analysts at Morgan Stanley believe that if Alphabet were to begin selling its TPUs, it could sell 500,000 to 1 million of them by 2027. What's more, the investment bank estimates that Alphabet's cloud sales would rise by 11% and earnings per share by 3% for every half million processors sold.
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The other side of the AI coin
Of course, for Alphabet, hardware isn't the only AI opportunity. The artificial intelligence market is continually evolving into a software-centric tool, with AI agents emerging as one of the next key areas of focus.
OpenAI's ChatGPT is widely regarded as the dominant player in this space, with many tech companies utilizing ChatGPT as their primary AI system to develop new software and services. But Alphabet's latest iteration of its own chatbot, Gemini 3, is a formidable opponent.
Alphabet says Gemini 3 can solve complex problems with "PhD-level" reasoning and solve multistep tasks like booking a local service. The company says it outperforms other frontier AI models on benchmark features, but the bigger headline with Gemini 3 may be that Alphabet has successfully kept pace with OpenAI.
OpenAI CEO Sam Altman reportedly sent out a "code red" memo to his employees about Alphabet's rising threat and has focused his company on new iterations of ChatGPT and away from other products.
Gemini already has 650 million active users, and the company recently stated that its AI Overview -- which provides an AI response through Google Search -- has over 2 billion monthly users.
Moreover, there's evidence that the company's AI services are driving Alphabet's sales higher. Google Cloud revenue -- under which its AI services are reported -- rose 34% in the third quarter to $15.2 billion. That growth is a good indicator that Alphabet's Gemini integration is paying off already, even as the company's focus on AI software is just getting started.
With Alphabet already succeeding with AI software and the company potentially poised to benefit from artificial intelligence processors, Alphabet is well on its way to catching the next AI wave, no matter where it's headed.
