Alphabet (NASDAQ:GOOG) could be among the most-watched mega-cap tech stocks in the market right now. Between the company’s core search and cloud businesses, to its booming AI bets and its Waymo autonomous driving division, there’s no shortage of innovation or growth catalysts for investors to rely on right now as rationale to own this name.
Berkshire Hathaway invested over $4B in Alphabet recently.
Alphabet’s TPUs offer a tailored and cheaper alternative to Nvidia’s GPUs for AI workloads.
Deepseek’s success with lower-cost chips highlights growing demand for cost-efficient AI infrastructure.
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That’s something not only the most ardent growth investors are picking up on, but even some of the most well-renowned value investors of all time. Warren Buffett and his Berkshire Hathaway (NYSE:BRK-B) team recently accounted a major investment of more than $4 billion in Alphabet after seeing what this company can do. And viewing the company’s core search business as the cash cow which can fund such innovation, as well as a valuation that’s more appealing than most of its mega-cap peers, that could portend well for long-term investors. At least, Berkshire hopes so.
We’ll have to see how long Berkshire keeps Alphabet in its portfolio. With a new team in place, it’s hard to tell if they’ll follow Buffett’s investing style of holding for years or decades at a time.
That said, here’s why I think Alphabet could indeed be the long-term holding investors would do well to hang on to during market cycles that are forthcoming, relative to some of the biggest chip names in the world including Nvidia (NASDAQ:NVDA).
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Bull vs. bear visual
Any sector that grows to scale via a pricing model in which buyers are relatively price insensitive is one that investors want to hop on. Nvidia’s ability to basically charge what it pleases for its high performance chips has led to astronomical profitability, and incredible expectations from investors that this profitability growth can continue for many years to come.
The thing is that such highly-profitable opportunities in the market are bound to invite competition. Other major players are going to want a piece of the action, ramping up their own chip development efforts to provide lower-cost or more-efficient alternatives.
Alphabet’s internal search for solutions for its own chip demand led the company to produce what it calls its Tensor Processing Units (TPUs). Unlike Nvidia’s GPUs and those produced by some of Nivida’s rivals, these TPUs are application-specific integrated circuits (ASICs) optimized for tensor operations in neural networks. In plain English, this means these chips can be tailor-made for companies’ specific use cases, but importantly can also be used to train AI models and perform inference tasks. That’s a big deal, given all the attention paid to companies in this space.
With Chinese rivals such as Deepseek providing high-powered models with much cheaper chips, the market is starting to understand the value of Alphabet’s TPUs and what these could mean for long-term growth.
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Man thinking with a question mark above his head
I think Nvidia’s high-performance chips, which are the undisputed champions of power and performance, will remain critical to many companies looking to accelerate their AI ambitions the fastest. But for companies looking for very specific use cases for their own chip sets, I do think TPUs can really take off as a primary option.
To me, the real losers in terms of potential market share from the rise of TPUs have to be Nvidia’s competitors. Companies like AMD and others have sought to create similarly-powerful chips at better price points, in a bid to chip away at Nvidia’s market dominance.
Alphabet could turn out to be the chip giant no one saw coming. And given the company’s extremely deep pockets due to its cash flow behemoth which is its Search and media (YouTube) empire, that’s an appropriate take in my view.
Buffett and his team may not have bought Alphabet for its growth potential tied to chips, but they also most likely did. This is a company with a number of compelling growth avenues I think are undervalued, and TPUs are the latest growth driver I think could be meaningful decades down the line.
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