Google begins selling TPU chips, becoming a semiconductor vendor

Alphabet ↘ 3.58% has begun delivering its custom Tensor Processing Units to customer data centers for the first time, marking its entry as a semiconductor vendor, even as CEO Sundar Pichai made clear that the company's own pursuit of artificial general intelligence takes first priority for chip allocation.

First Hardware Revenue Recognized

During Alphabet's Q2 2026 earnings call on July 21, CFO Anat Ashkenazi confirmed the company started recognizing revenue from TPU system sales during the quarter, contributing to Google Cloud's 82% year-over-year revenue surge to $24.8 billion. "We started delivering TPU systems to customer data centers in the second quarter," Ashkenazi said, adding that the company expects "a relatively small portion of the revenues from our existing TPU system sales agreements this year, ramping as we exit 2026," with "the vast majority" to be realized in 2027.Constellationr+2

The TPU hardware agreements are reflected in Google Cloud's backlog, which grew $50 billion in the quarter to reach $514 billion. Alphabet also raised its full-year 2026 capital expenditure guidance to $195 billion to $205 billion, up from $180 billion to $190 billion projected last quarter.TheStreet+2

AGI First, Customers Second

When pressed on how Google allocates its supply-constrained TPU fleet, Pichai was direct. "Our first priority is making sure we are allocating what we need to compete at the frontier in terms of AGI development," he told analysts, according to The Register. He added that the company is also "prioritizing our core product areas like Search, YouTube, et cetera, as well as Cloud."Theregister

To manage demand that exceeds its internal capacity, Ashkenazi said Google plans to "expand the use of third-party capacity in Q3 as a bridging strategy while we build out more internal capacity".Constellationr+1

Supply Constraints and the Road Ahead

The supply crunch traces back to limited advanced packaging capacity at Taiwan Semiconductor Manufacturing Company ↘ 1.20%, which fabricates Google's TPUs. Production targets for 2026 were previously cut from roughly 4 million to around 3 million units due to CoWoS packaging bottlenecks. Analysts expect TPU production to ramp to 5 million to 6 million units in 2027 as TSMC expands capacity.Moomoo News+1

The move to sell TPUs directly puts Google in more direct competition with Nvidia ↘ 1.47% in the AI accelerator market, though Alphabet's free cash flow turned negative for the first time in Q2 — reaching minus $5.9 billion — as spending on AI infrastructure intensifies.TheStreet