Alphabet posted Q1 results Wednesday night and the AI trade rotated hard on Friday. Google Cloud revenue jumped 63% to over $20 billion. The company also confirmed it will start selling its custom TPU chips to outside customers. Nvidia fell 4.3% Friday without reporting a thing. Its earnings hit May 20.
May 4, 2026
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Alphabet closed up 9.6% Friday. Nvidia closed down 4.3%. Friday's CNBC headline said Alphabet's market cap is on track to pass Nvidia's again.
The driver is structural, not seasonal. For the first time, Google will sell its in-house AI chips, called TPUs, to a select group of cloud customers. Until now, those chips were used only inside Google's own data centers.
TPUs stand for Tensor Processing Units. They are built to handle AI workloads. Until last week, every cloud-scale AI buyer outside Google had basically two choices, Nvidia or AMD. Now there are three.
Nvidia's bull case rests on one number, gross margin. The company prints roughly 75% gross margins on top-end chips. That holds only if buyers have no real alternative.
Google said its newest TPU 8i delivers 80% better performance per dollar than the prior generation. The TPU 8t triples the processing power of Ironwood. Those are not marketing slogans. Those are the kind of price-per-token figures that move enterprise contracts.
Nvidia stock still trades 23% below the average Wall Street price target of $268.61. The price target argument is intact. The margin argument just got weaker.
Friday's tape told the rotation story. AMD and Broadcom outperformed Nvidia. Taiwan Semiconductor held up because it actually makes the chips for everyone, including Nvidia, AMD, and Google.
Broadcom is the quiet winner. The company designs the custom chips, called ASICs, that hyperscalers like Google and Meta use for in-house AI. The more big tech moves off Nvidia, the more Broadcom gets paid.
Google has now extended its TPU partnership timeline through 2031. Meta has deepened its custom MTIA chip plans. The pattern is clear.
Nvidia reports earnings after the close on May 20. That is 18 days from today. Wall Street consensus is $78 billion in revenue guidance for the next quarter.
Three things will set the stock reaction. The China data center number, which the company said it would not include in forward guidance. The gross margin trend over the next two quarters. And any direct mention of TPU competition on the call.
Last quarter, Jensen Huang waved off custom-chip threats. Friday's Alphabet news made that answer harder to give a second time.
Three takeaways for retail investors who own AI chip stocks. First, do not assume Nvidia's margins stay where they are. Plan for compression.
Second, the AI rotation is real. Names like Broadcom, AMD, and Taiwan Semi captured Friday's flow. Watch whether that holds through May 20.
Third, Alphabet is now an AI hardware story, not just a search and ads story. The cloud backlog nearly doubled to over $460 billion last quarter. That is a multi-year revenue pipeline most investors have not priced in.
Friday was not a one-day story. Google selling TPUs externally is the most credible threat to Nvidia's pricing power since ChatGPT launched. Nvidia gets one chance to respond on May 20.
If you own AI chip stocks, know what you own and know why. The trade has changed. The leadership might too.