(Nov 25): A rally in Alphabet Inc shares is poised to shake up the ranking of the world’s most valuable companies, amid signs the search giant is making headway in efforts to rival Nvidia Corp’s bestselling artificial intelligence (AI) accelerator.
That’s prompting investors to reassess the technology landscape and the potential changes in stock market leadership, as rave reviews for Alphabet’s new Gemini AI model and demand for AI chips pushes its shares higher.
Shares in the Mountain View, California-based firm rallied 2% to hit a US$3.9 trillion ($5.1 trillion) market value. Its 37% rally since mid-October has added about US$1 trillion in value over that time. Gains this year have left the Google parent about US$300 billion away from Nvidia’s US$4.2 trillion market cap.
Meta Platforms Inc is in discussions to use Google chips — known as tensor processing units, or TPUs — in data centres in 2027, The Information reported, citing an unidentified person familiar with the talks. Meta also may rent chips from Google’s cloud division next year, the news outlet said.
“Nvidia is expected to have phenomenal growth and now it will be very natural to see a market that is much more wary of competition,” said Alexandra Morris, an investment director at Skagen AS. “The narrative that Nvidia is the only one that will provide chips to this build-up of data centres — that narrative has changed.”
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An agreement with Meta would help establish TPUs as an alternative to Nvidia’s chips, the gold standard for big tech firms and start-ups from Meta to OpenAI that need computing power to develop and run AI models.
Nvidia slipped 5.1%, while shares in smaller-rival Advanced Micro Devices Inc, which also makes AI chips, fell 7.8%.
Nvidia’s valuations have pulled back, trading at 26 times forward earnings, well below its average over the past decade of 35 times. Alphabet’s has shot up to trade at 27 times forward earnings compared to an average of 20 times.
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While a possible deal with Meta — one of the biggest spenders globally on data centres and AI development — draws attention to the potential for long-term challenges to Nvidia’s dominant market position, much depends on whether the tensor chips can demonstrate the power efficiency and computing muscle necessary to become a viable option in the long run.
This frenzy is causing Alphabet stock’s 14-day relative strength index to about 75, over the level of 70 that signals to some technical analysts that a stock is overbought.
While Miller Tabak + Co, LLC chief market strategist Matthew Maley says Alphabet could take “the leadership role for the AI industry going forward”, he points out that the stock is now getting “more than just a little bit overbought”.
“So, it could be due for a pullback at some point before too long,” said Maley.
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