Alphabet is generating billions by marketing its homegrown TPUs to external customers, propelling Google Cloud revenue to more than double in the September quarter. Yet, finance chief Anat Ashkenazi confirmed that building chip inventory ahead of payments fundamentally alters the company's cash cycle. Wall Street responded harshly, sending Alphabet shares down nearly 11 percent on Thursday after the firm projected infrastructure expenses will rise sharply next year. High-profile commitments include tens of billions of dollars worth of processors pledged to Anthropic alongside discussions with OpenAI.
Key points
Transitioning to a hardware-heavy custom chip model requires massive upfront investments…: Transitioning to a hardware-heavy custom chip model requires massive upfront investments in data centers and inventory before customer payments materialize.
Executive leadership projects that deliveries of bundled processor systems will expand th…: Executive leadership projects that deliveries of bundled processor systems will expand this quarter and scale significantly through 2027.
Several market analysts believe the current strain on cash reserves is temporary and that…: Several market analysts believe the current strain on cash reserves is temporary and that long-term margins could rival Nvidia's hardware.
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Oct 29 : Alphabet is making billions of dollars selling homegrown AI chips it once reserved for internal use, but building inventory to meet surging demand is draining cash as the tech giant spends heavily on data centres.
Unlike its traditional search and cloud businesses, selling AI chips that compete with Nvidia's requires Alphabet to spend on hardware well before customers pay, putting pressure on cash flow.
The trade-off, outlined by finance chief Anat Ashkenazi on Alphabet's post-earnings call on Wednesday, offers an early look at the costs of a business that has emerged as one of the company's biggest growth areas as investors fret over AI's threat to its lucrative search advertising business.
"Where previously inventory balances were primarily some of our hardware products, now those TPU (custom chip) systems that are not yet sold will be showing up. So you see cash going out ... it's not the traditional kind of capex but rather a different cycle of cash flow generation," Ashkenazi said.
That shift could pressure Alphabet just as investors grow more concerned about the mounting cost…
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