Key facts
- Alphabet is selling homegrown AI chips, called tensor processing units (TPUs), for billions of dollars.
- Building inventory for TPUs before customer payment is straining cash flow.
- TPU sales contributed meaningfully to Google Cloud's revenue growth in the September quarter.
- Alphabet expects TPU system sales to increase further in the current quarter and significantly in 2027.
Alphabet is generating billions of dollars by selling its custom AI chips, known as tensor processing units (TPUs), which are contributing to Google Cloud's revenue growth. However, the company is experiencing a cash flow strain due to the need to build inventory for these chips before customers pay, a shift from its traditional business models. Finance chief Anat Ashkenazi noted that inventory balances for unsold TPU systems are now appearing, leading to cash outflow. This shift comes as investors worry about the rising costs of AI, with Alphabet's shares falling after reporting cash burn and reiterating increased spending on AI infrastructure. Despite the cash flow pressure, the sale of TPU systems, which bundle chips with networking, storage, and software, is expected to rise further and ramp up significantly in 2027.