Oracle to sell Google TPUs, targeting $9.4 billion in hardware revenue

Oracle will begin selling Google’s tensor processing units directly to customers, marking the first time the custom chips have been available outside Alphabet’s own infrastructure. The announcement came on Tuesday, one day before Alphabet releases its third-quarter earnings.

The move signals a shift in strategy for Thomas Kurian, who has led Google Cloud since 2018. Previously, the company insisted on selling its chips, models, and services as a single, integrated stack to compete with Amazon and Microsoft. By opening the technology to external partners, Kurian aims to capture a larger share of the artificial intelligence hardware market currently dominated by Nvidia.

Financial models for the TPU business show substantial projected growth. TD Cowen estimates TPU sales will reach $9.4 billion in the second half of 2026 and $62.5 billion in 2027. Wells Fargo projects approximately $9 billion in sales for the third quarter and $99 billion for the following year. CFO Anat Ashkenazi noted in July that while some revenue will be recognized this year, the vast majority of income from existing agreements is scheduled for 2027.

Investors view the expansion positively despite the company’s existing strength. Google Cloud revenue is expected to rise roughly 90% year over year, following an 82% increase in the second quarter. Chris Ballard, managing director at Check Capital Management, stated that Google is a strong competitor capable of taking market share from Nvidia. Uday Cheruvu of Harding Loevner said the company’s mindset has changed from keeping technology internal to actively serving external customers.

The strategy requires balancing external sales with internal efficiency. Kurian stated in September that servers running Google’s own silicon reach payback in roughly half the time of standard AI servers due to full-stack optimization. Industry research from SemiAnalysis estimates the latest Ironwood TPU costs about 44% less to operate than an Nvidia GB200 server.

Margins present a challenge for the new sales channel. TD Cowen estimates a 20% operating margin on TPU sales, compared to Google’s overall cloud margin of approximately 35% last quarter. Cheruvu suggested that cloud operating margins may not widen significantly beyond the mid-30s. Google declined to comment on the specific impact of the Oracle partnership on profitability.

Major AI developers are already integrating the hardware. Anthropic agreed last October to use up to 1 million TPUs in a deal worth tens of billions of dollars. This week, Broadcom detailed a $63 billion financing vehicle backed by Blackstone and three banks to purchase TPUs and networking gear for lease to Anthropic. OpenAI is also planning to buy TPUs from Google, a fact confirmed by CNBC after initial reports from The Information. In its IPO filing, Anthropic noted it uses silicon from Google, Amazon, Nvidia, and AMD to select chips based on price and efficiency for specific workloads.