Cloud Strategy: Google Unlocks TPU Sales via Oracle Partnership

Alphabet announced on Tuesday that Oracle will begin hosting Google's tensor processing units, marking the first time the chips are available outside of Google's own data centers. The disclosure came the day before the company releases its third-quarter earnings. This shift ends a long-standing strategy where Google sold hardware, models, and cloud services as a single package, a model that Amazon and Microsoft have attempted to replicate.

The partnership signals a new growth vector for Thomas Kurian, the head of Google Cloud. Kurian spent more than two decades at Oracle before joining Google in late 2018. His team is now leveraging third-party infrastructure to expand its hardware reach. Analysts project that Google Cloud revenue will increase by approximately 90% year over year, following an 82% surge in the previous quarter. TPUs are identified as a primary driver of this acceleration.

Market reaction to the move is positive, with investors viewing it as a strategic pivot. Chris Ballard, a managing director at Check Capital Management, noted that Google is a strong competitor that could eventually capture share from Nvidia. Uday Cheruvu, a portfolio manager at Harding Loevner, stated that Google has historically focused on internal solutions but has now adapted to serve external customers more effectively. Both analysts hold positions in Alphabet shares.

Financial forecasts for the TPU business vary among institutions, though all indicate rapid expansion. TD Cowen models $9.4 billion in sales for the second half of 2026 and $62.5 billion for 2027. Wells Fargo expects third-quarter sales of roughly $9 billion and total sales of $99 billion next year. Anat Ashkenazi, the chief financial officer, told investors in July that the majority of TPU revenue from current contracts will be recognized in 2027, with only a small portion appearing in the current year.

Despite its rapid growth, Google Cloud remains smaller than its main competitors. Its second-quarter revenue of $25 billion lagged behind Amazon Web Services at $42 billion and Microsoft Azure at $29 billion. However, Google is growing at the fastest rate among the three. Selling chips externally introduces margin pressure. TD Cowen estimates an operating margin of 20% on TPU sales, compared to the overall cloud margin of roughly 35% reported last quarter. Cheruvu does not anticipate the cloud operating margin expanding significantly beyond the mid-30s range.

Kurian faces a balancing act between serving external clients and meeting internal demands. At a Goldman Sachs conference in September, he stated that Google's AI servers based on its own silicon reach payback in about one year, half the time required for other AI servers. He attributed this efficiency to the company's ability to optimize the entire stack. SemiAnalysis estimates that the latest Ironwood TPU costs 44% less to own and operate than an Nvidia GB200 server.

The largest customer for these chips is Anthropic, a major competitor in the AI model space. Anthropic agreed in October 2025 to use up to 1 million TPUs in a deal valued at tens of billions of dollars. Mizuho analysts describe the arrangement as providing nearly a gigawatt of capacity this year, effectively arming Google's closest competitor with its hardware. CNBC has also confirmed that OpenAI plans to purchase TPUs from Google. Anthropic's IPO filing on Monday detailed its use of silicon from Google, Amazon, Nvidia, and Advanced Micro Devices, noting that it selects chips based on price-performance and efficiency for specific workloads. The company said its partnerships with Google and Broadcom provide access to compute capacity across multiple TPU generations.

To fund these purchases, Anthropic is utilizing external financing. Broadcom detailed a $63 billion vehicle this week, backed by Blackstone and three large banks. The entity will buy TPUs and networking gear from Broadcom and lease them to Anthropic for five years. William Blair analysts indicate this financing covers about half of Anthropic's 2027 needs, implying further capital commitments are likely.