The artificial intelligence sector saw sharp rotations this week after reports that Meta Platforms (META-US) is considering leasing and potentially purchasing custom TPU chips from Alphabet (GOOGL-US) starting in 2027. The news boosted Alphabet and Broadcom (AVGO-US) shares, while putting pressure on Nvidia (NVDA-US) and AMD (AMD-US).
Alphabet Gains Momentum
Alphabet’s stock strength reflects growing confidence in its AI strategy, particularly following the release of its Gemini 3 model, which has been praised for its generative AI capabilities. Analysts say Google’s cloud and hardware ecosystem are increasingly viewed as competitive advantages.
Jordan Klein, technology strategist at Mizuho Securities, noted that fund managers are treating Google’s TPU platform as the "frontrunner" in the AI race. "The past few weeks have seen a ‘winner-takes-all’ trade in the AI and TMT markets," Klein wrote, adding that the rally in Google and its suppliers is "gaining momentum."
Winner-Takes-All Narrative
The market’s behavior suggests investors are betting heavily on Alphabet, while rivals such as Amazon, Microsoft, OpenAI, and Nvidia face skepticism. Klein cautioned, however, that it is "too short-sighted" to assume AI leadership will be settled by the end of 2025. He emphasized that the race is a marathon, with rankings likely to shift as companies pour billions into infrastructure spanning computing, memory, networking, and power.
Bank of America Defends Nvidia and AMD
Not all analysts agree with the rotation. Vivek Arya of Bank of America reiterated buy ratings on Nvidia and AMD, arguing that both remain critical players in AI hardware.
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Nvidia: Trading at roughly 25x earnings, with expectations of 40%+ growth, Arya said the company is being valued like a "normal" firm despite its dominant role in GPUs.
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AMD: With a forward P/E of about 33x for 2026, AMD continues to benefit from multiple growth drivers, including CPUs, GPUs, embedded products, and gaming.
Arya also highlighted Broadcom’s AI-related sales, which are projected to grow by over 100% in 2026, though Google’s expanded TPU licensing could limit some ASIC opportunities.
Market Divergence
The rotation underscores diverging views on AI’s future. Alphabet’s surge suggests investors are rewarding companies with diversified AI strategies and proprietary hardware. Meanwhile, Nvidia and AMD remain under scrutiny despite strong fundamentals and growth prospects.
For fund managers, the dilemma is clear: follow momentum trades into Alphabet and its ecosystem, or stick with established GPU leaders whose valuations may now look more reasonable.
The Bottom Line
The AI showdown is far from settled. Alphabet’s rise highlights renewed confidence in its TPU platform and cloud business, but analysts warn leadership will continue to shift as infrastructure investments reshape the competitive landscape. Nvidia and AMD, despite near-term pressure, remain essential players in the hardware backbone of AI.