Selling 500,000 units, the earnings per share increase by 3%! Morgan Stanley: Alphabet Inc. Class C (GOOGL.US) export of TPU will bring a moderate boost to sales and profits.

In the midst of reports that Alphabet Inc. Class C (GOOGL.US) is in discussions with Meta (META.US) to sell its tensor processing unit (TPU), Morgan Stanley believes that this could potentially bring a moderate boost to sales and profits for this tech giant. The Morgan Stanley analyst team, led by Brian Nowak, wrote in a client report, "If Alphabet Inc. Class C sells TPU through a first-party model, it could indeed have a significant impact. Our sensitivity analysis shows that selling approximately 500,000 TPUs externally could bring about $13 billion (about 11%) upside to our 2027 cloud revenue forecast for Alphabet Inc. Class C, and approximately 3% ($0.37) upside to 2027 earnings per share for Alphabet Inc. Class C." The analysts explained that if Alphabet Inc. Class C's cloud business growth accelerates and the company's expansion in the semiconductor market materializes, this "is likely to support Alphabet Inc. Class C in achieving higher valuation multiples (as we have observed in the past few months)." The analysts also added that considering NVIDIA Corporation's (NVDA.US) expected shipment of approximately 8 million GPUs in 2027 (assuming sufficient capacity), sales forecasts of 500,000 to 1 million TPUs for Alphabet Inc. Class C may not be "unreasonable." Furthermore, the analysts indicated that there are still many unknowns surrounding Alphabet Inc. Class C's strategy for expanding its TPU sales outward, posing three key questions for investors: its business model, pricing model, and the types of workloads TPU can handle. At the same time, an important question is how Alphabet Inc. Class C's push for TPU external sales will impact other semiconductor companies. According to the analysts, beneficiaries will be Broadcom Inc. (AVGO.US) - the company that jointly designs TPUs with Alphabet Inc. Class C - while the impact on NVIDIA Corporation and AMD (AMD.US) is very small or almost non-existent. The analysts stated, "Regarding Alphabet Inc. Class C's success in large language models (LLM), we believe NVIDIA Corporation has gained more share internally at Alphabet Inc. Class C this year. Alphabet Inc. Class C spends about $20 billion on NVIDIA Corporation products, while spending only a few billion on TPUs. This situation will to some extent reverse next year, but we do not believe growth will result in a 'winner takes all' scenario. Currently, we do not believe that Gemini surpassing GPT-5 as a leading model means that competitors will slow down - we repeatedly hear from industry leaders about the importance of this competition, and we expect the competition to remain fierce - particularly as scaling laws continue to be effective."