TPU exports open up new markets; BNP Paribas raises Google (GOOGL.US) target price to $450, bullish by 28%

According to Jinshi Finance APP, BNP Paribas has raised its target price for Google's Alphabet (GOOGL.US) from $420 to $450, citing the potential revenue from external sales of its self-developed AI chip, the Tensor Processing Unit (TPU).

The $450 target price proposed by BNP Paribas is based on a 26.5x price-to-earnings ratio (P/E) of its estimated 2028 earnings per share (EPS) of $17; the previous valuation method used a 30x P/E for an estimated 2027 EPS of $13.85. Based on Alphabet's closing price of $351.40 on Tuesday, the new target price implies a 28% upside.

The broker estimates that, based on publicly disclosed purchase commitments from customers such as Anthropic and Blackstone, external sales of TPUs could generate cumulative revenue of $80 billion to $100 billion by 2028.

BNP Paribas states that Alphabet has already secured over 5 gigawatts (GW) of confirmed TPU capacity commitments, most of which are expected to be delivered starting from 2027. The bank expects TPU revenue to exceed $4 billion in 2026, over $40 billion in 2027, and $30 billion in 2028.

The bank expects that TPU sales will significantly increase the absolute amount of operating profit, but in the near to medium term will drag down the operating profit margin of Google Cloud. The bank estimates that the profit margin will be diluted by about 115 basis points in 2027 and more than 50 basis points in 2028.

BNP Paribas also points out that supply chain constraints could affect the timing of sales; and the limited public information regarding TPU economics also makes the profit impact uncertain.