Google's Nvidia chip challenge boosts cloud sales, crimps cash flow
Alphabet is selling billions of dollars of its custom AI chips, but building inventory and spending on data centres are weighing on cash flow. Google Cloud revenue more than doubled in the September quarter, and sales of chip systems are expected to ramp up significantly in 2027.
1. Chip sales use cash upfront
Alphabet’s sales of tensor processing units, or TPUs, are creating a different cash-flow cycle from its traditional search and cloud businesses because the company spends on hardware before customers pay. Finance chief Anat Ashkenazi said unsold TPU systems are appearing in inventory and contributing to cash outflows.
2. Cloud growth and spending
Alphabet said TPU sales made a “meaningful” contribution as Google Cloud revenue more than doubled in the September quarter. The company does not disclose chip revenue or margins. Google Cloud chief Thomas Kurian said sales of TPU systems—which bundle chips with networking, storage and software—are expected to rise in the current quarter and ramp up significantly in 2027.
3. Investment weighs on shares
Alphabet shares fell nearly 11% on Thursday after the company reported another quarter of cash burn and reiterated that AI infrastructure spending would rise sharply next year. Alphabet said last year it would supply Anthropic with tens of billions of dollars’ worth of TPUs; media reports have said it is also in talks on a similar deal with OpenAI.
