1 Analyst Thinks Alphabet Stock Could Jump 20% on AI Chip Demand. Is He Right?
Key Points
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The company is tapping into an expanding custom AI chip market that could bring it as much as $104 billion in sales by 2028.
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Alphabet stock could rise on soaring chip sales, but investors should still keep an eye on market skepticism toward AI spending.
Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL) has been a standout success in the artificial intelligence (AI) market. The company’s Google Cloud sales are soaring as companies tap Google’s AI services, a trend that recently boosted the stock.
And Doug Anmuth, an analyst at J.P. Morgan, thinks there’s plenty more room for the stock to run. Anmuth recently raised his price target for Alphabet stock to $425 — about 23% upside from its current price.
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His optimism hinges on Alphabet’s ability to accelerate its cloud revenue by selling its custom AI processors to other companies. And he’s probably right to be bullish.
Why it’s possible Alphabet stock could climb higher on AI chip demand
Alphabet has co-designed its Tensor Processing Units (TPUs) for years to use in its own data centers. But very recently, it also began selling those processors to other AI companies. Custom processors like Alphabet’s TPUs are great at running AI agents and specific AI models, and can be more efficient than using GPUs for all AI processing. So, for companies building their own AI infrastructure, it can be beneficial to buy TPUs for their specific AI needs.
And that’s where Alphabet’s expanding revenue opportunity comes from. Google Cloud sales already soared 82% to $24.8 billion in the second quarter of 2026 as Alphabet sold more AI products and cloud services to enterprise companies. But now that it’s also selling AI chips, Anmuth thinks Google Cloud revenue could double in the third quarter.
Investors were already optimistic about Alphabet stock after the company reported its second-quarter results, and any further gains in cloud sales could help push its share price higher.
Alphabet CEO Sundar Pichai said earlier this year, “As TPU demand grows from AI labs, capital markets firms, and high-performance computing applications, we will begin to deliver TPUs to a select group of customers in their own data centers in the hardware configuration to expand our addressable market opportunity.”
And it’s a great time to begin selling them. AI processor demand is rising quickly, and custom processors are already becoming a larger portion of overall AI processing. TrendForce estimates that while GPU processor sales will grow by 16% over the next year, custom processors will rise by 45%.
So, how high could Google TPU sales go? Piper Sandler analyst Thomas Champion estimates the company’s processor sales could reach $104 billion by 2028. For comparison’s sake, Alphabet’s total revenue in its second quarter was $120 billion. All of which means that Alphabet has a sizable opportunity in selling its custom processors.
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One thing Alphabet investors should keep in mind
Alphabet reported earnings per share of $9.11 in the second quarter, an impressive 294% increase from the year-ago quarter. Shareholders will get more clarity on how the company is doing when Alphabet reports its third-quarter results on Oct. 28.
But while Alphabet is highly profitable, some tech investors are increasingly concerned about the broader spending spree among AI companies. Alphabet will spend about $200 billion in AI infrastructure this year. If the overall sentiment toward AI stocks shifts as investors question further AI spending, it could hinder Alphabet’s share price growth.
Still, expanding chip sales and rising cloud revenue will likely help ease shareholders’ concerns about Alphabet’s spending. What’s more, Alphabet stock is still relatively well priced. The company’s stock has a trailing price-to-earnings ratio of about 17, compared to the tech sector average of 33.
If Alphabet can continue delivering impressive profits and expand its AI chip sales over the coming quarters, its stock could climb higher and remain one of the best AI stocks out there for long-term investors.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and JPMorgan Chase. The Motley Fool has a disclosure policy.