• Bank of America analysts highlight Google's expanding Tensor Processing Unit (TPU) business as a competitive threat to established AI chip players.
  • Despite this pressure, the firm maintains Buy ratings on Nvidia, Broadcom, and AMD, citing sustained demand and strong financial prospects.
  • Nvidia trades at ~25x forward earnings, which BofA argues undervalues its potential for over 40% growth, while Broadcom's premium valuation reflects expectations for 100%+ AI sales growth in 2026.

Google’s efforts to expand the reach of its custom Tensor Processing Units are creating new competitive dynamics in the AI chip market, according to a recent analysis from Bank of America. The development comes as Meta Platforms is reportedly in negotiations to acquire billions of dollars’ worth of Google TPUs, a move that validates the technology as a viable alternative to Nvidia’s dominant GPUs.

The report notes that this has already triggered notable stock movements, with Nvidia shares dipping on the news while shares of Alphabet, Google’s parent company, and Broadcom, which is involved in designing the TPUs, surged. This shift points to major industry clients actively diversifying their AI chip suppliers beyond the current market leader.

Despite the growing competitive pressure, BofA analysts remain bullish on the sector's incumbents. They underscore Nvidia’s formidable position, driven by universal cloud adoption, substantial free cash flow, and projected sales and EPS growth exceeding 40%. “The current valuation may seem high to some, but it fails to capture the sheer scale of the growth runway,” one analyst familiar with the matter said, suggesting that at approximately 25 times forward earnings, Nvidia’s stock is undervalued relative to its potential.

Broadcom, trading at a premium 38x PE, is seen as a direct beneficiary of the TPU ecosystem in the near term. The firm’s valuation reflects sky-high expectations, including a forecast for AI-related sales to more than double in 2026. However, the analysts caution that if Google accelerates the licensing of its TPU technology more broadly, it could eventually cap the available market for Broadcom’s custom chip design business.

For AMD, which trades at around 33x PE, the investment case is supported by broad-based growth across its portfolio of CPUs, GPUs, embedded systems, and gaming. The company is well-positioned to capture demand from customers seeking a second source for high-performance computing, making it less vulnerable to a single competitive threat.

The overarching theme from the report is that while the competitive landscape is fragmenting, the total addressable market for AI semiconductors is expanding at a pace that can support multiple winners. The historic levels of capital expenditure from hyperscalers like Meta, Google, Amazon, and Microsoft are fueling a long-term infrastructure buildout, ensuring sustained demand for the foreseeable future. A spokesperson for Bank of America declined to comment beyond the published report.

Correction: An earlier version of this article misstated Nvidia's current PE ratio. It is approximately 25x forward earnings, not 45.3x, which reflects a different calculation.