Morgan Stanley projects Google custom TPU silicon will generate $200 billion in revenue over the next two years, potentially driving shares back to $400.
According to TradingKey, Morgan Stanley projects that Alphabet’s AI chip business could generate nearly $200 billion in TPU-related Google Cloud revenue between 2027 and 2028. This expansion is driven by surging external sales and a revised gross margin assumption of 30%, raised from 20%. By transitioning from an internal compute provider to a broader AI infrastructure supplier, Google unlocks significant new revenue streams through system sales, leases, and supporting cloud services. Consequently, the bank maintains an "Overweight" rating on Google (GOOGL) with a reiterated target price of $400.
In a newly updated estimation model, analyst Brian Nowak forecasts that Google will sell approximately 0.3 gigawatts (GW) of TPU systems in the second half of 2026. Capacity is expected to scale sharply to 3.2 GW in 2027 and reach 4.2 GW in 2028. Correspondingly, TPU-related Google Cloud revenue is projected to hit $84 billion in 2027 and $108 billion in 2028, totaling nearly $200 billion over the two-year period. Morgan Stanley attributes the improved margin outlook to expanded custom chip partnerships with Marvell Technology, which should support higher system pricing and profitability.
Historically, Tensor Processing Units (TPUs) have primarily powered Google’s internal workloads, including search, cloud computing, and AI product development. Scaling external TPU sales marks a strategic pivot, positioning Google not just as a major consumer of AI capital expenditure, but as a foundational AI infrastructure provider. This shift transforms TPUs into a standalone growth engine for Google Cloud, diversifying its revenue base beyond traditional software and advertising models.
From a technical perspective, Google’s stock recently peaked near $384.47 before undergoing a sharp correction. Price action has since found footing near the 0.618 Fibonacci retracement level at $341.48, where recent lows have held steady. The share price has entered a narrow-range consolidation phase, signaling a potential recovery pattern. Moving averages remain intertwined without forming a clear bullish divergence, indicating ongoing competition between buyers and sellers.
For a confirmed structural rebound, the stock must decisively break above the confluence zone comprising the five-day moving average ($347.24), the 160-day moving average ($347.84), and the 0.5 Fibonacci retracement level at $349.69. Sustained trading above $349.69, particularly during pullbacks, would signal a transition from short-term moving average recovery to longer-term structural strength. Key resistance levels to monitor include the 0.382 Fibonacci retracement at $357.89 and the 0.236 level at $368. Failure to reclaim this zone would suggest the current move remains a technical bounce rather than a sustained trend reversal.
Conversely, a decisive break below the $341.48 support level, coupled with an inability to recover on subsequent bounces, would invalidate the current support structure. Such a breakdown could expose further downside risk toward the 0.786 Fibonacci retracement level at $329.79.