Alphabet: Gemini momentum and possible Meta TPU deal underscore AI capability
We think Alphabet is exceptionally well positioned in everything AI.
Mentioned: Alphabet Inc Class C (GOOG)
Key Morningstar metrics for Alphabet
- Fair Value Estimate: $340
- Morningstar Rating: ★★★
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: Medium
Alphabet GOOG‘s recently launched Gemini 3 model and rumored TPU deal with Meta, which would potentially include TPUs being placed in Meta’s data centers, have sent shares of the firm higher in the last week as the market repositions Alphabet as a standout artificial intelligence leader.
Why it matters: We have reiterated our confidence in Alphabet’s full-stack AI strategy multiple times over the last year, with the firm being the only AI player with leading-edge solutions all the way from infrastructure, TPUs, and Google Cloud, to consumer distribution, Search, and Gemini.
- We believe that Gemini 3’s outperformance on not only performance benchmarks, which can be “gamed,” but also in actual use as evidenced by the rave reviews it has generated from the developer community, demonstrate the firm’s AI chops.
- We also view the rumored Meta TPU deal as significant as it would be the first time TPUs would be placed outside of Google Cloud, opening up another revenue stream for Alphabet if the firm scales external TPU sales and placing it in direct competition with the likes of Nvidia.
The bottom line: We maintain our $340 fair value estimate for wide-moat Alphabet and continue to view the firm as exceptionally well positioned in everything AI. With shares up almost 20% since the firm’s third-quarter earnings at the end of October, we view them as fairly valued.
- While we remain optimistic about Alphabet’s TPU program, we view it as primarily an outpost to drive more Google Cloud sales while expanding Alphabet’s AI monetization surface. If external TPU sales ramp meaningfully, we see further upside to our fair value estimate.
Big picture: We believe multimodality built into Alphabet’s Gemini models continues to be a big driver of usage. We saw a surge in Gemini’s monthly users after the launch of its image generation model, Nano Banana, in the summer and expect another surge following the successful Gemini 3 launch.
