Alphabet and Amazon Custom Silicon: Full-Stack Vertical Integration Vs. Compute Cost-Arbitrage
This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.
Alphabet (NASDAQ:GOOGL | GOOGL Price Prediction) and Amazon (NASDAQ:AMZN) released their third-quarter earnings. Both cloud units posted their fastest growth in years, but their chips play very different roles. Alphabet runs TPUs behind its own Gemini models and Search. Amazon uses Trainium and Graviton to cut the cost of running other companies’ models inside AWS.
TPUs Doubled Google Cloud While Trainium Runs Bedrock
Google Cloud revenue reached $30.71B, up 103%, and Alphabet now books TPU system sales as Cloud product revenue. That means a chip business now sits inside the cloud line. Sundar Pichai said Google is “seeing strong demand for our TPU systems across a wide range of customers.” Cloud operating income rose to $11.12B from $3.59B, which shows the cloud business makes money at scale. Search query growth hit its highest rate in five years, and the Gemini app reached one billion users. Each layer of the stack sends demand to the others.
AWS grew revenue 39% to $45.98B, its fastest pace in nearly five years. Andy Jassy said “most of Bedrock today is being run on top of Trainium.” Customers using Amazon’s chips saved more than $2 billion in Q3 alone, which is a strong reason for them to stay on AWS.
| Business Driver | Alphabet | Amazon |
|---|---|---|
| Cloud Growth | 103% | 39% |
| Cloud Operating Income | $11.12B | $17.77B |
| Chip Showcase | TPU systems sold to outside customers | Trainium running most of Bedrock |
| Model Strategy | First-party Gemini | Multi-model marketplace |
One Owns Frontier Training. One Undercuts Inference Pricing.
Google spent a decade building TPUs into its own platform for frontier training and native JAX scaling. Amazon designed its chips, aiming NVIDIA (NASDAQ:NVDA), to break Nvidia’s pricing power on inference. Jassy’s view explains that choice: “There is not one tool to rule the world.” He expects six to eight models to reach about the same quality. If he’s right, AWS makes money whichever lab comes out ahead. If Alphabet is right, owning the best model on the cheapest chip wins.
Both strategies cost a lot. Alphabet’s capex hit $51.36B, free cash flow fell to negative $9.07B, and the company sold new shares through its at-the-market (ATM) program, which reduces existing holders. Amazon’s capex reached $77.26B, with about $220B expected for 2026.
Trainium’s 2027 Debut Outside AWS Could Reshape This Race
Amazon plans to sell Trainium outside AWS late in 2027. That would put it in direct competition with Google’s TPU sales. I will also be watching AWS margins. Brian Olsavsky noted that AI margins run lower than core AWS margins, and today’s 38.7% operating margin could narrow as Bedrock grows. For Alphabet, watch whether TPU customers keep spreading beyond its own products.
Why Alphabet’s Full Stack Wins My Attention
Alphabet trades at about 13 times earnings, compared with Amazon’s 37. Alphabet’s multiple looks cheaper partly because big equity gains earlier in the year inflated its trailing earnings, so I treat it with some caution. Alphabet shares fell 18.06% over the past month, while Amazon is up 15.64% year to date.
I find Alphabet more compelling because it has every layer, from hardware to a billion Gemini users. Amazon’s model offers AI exposure without depending on a single winning model. My view could shift if Alphabet’s share dilution speeds up or TPU demand stalls.
Contact [email protected] for any questions or corrections.
Alex Sirois is a financial writer with experience spanning both retail and institutional investing. He has written for InvestorPlace and held roles at BNY Mellon and Bernstein, giving him a perspective that bridges Main Street portfolios and Wall Street analysis.
Alex holds an MBA from George Washington University and has built his career across multiple industries, including e-commerce, education, and translation — a breadth of experience that informs how he breaks down complex financial topics for everyday investors. His writing is conversational, actionable, and grounded in long-term, buy-and-hold investing principles.
At 247 Wall St., Alex focuses on delivering analysis that is both accessible and useful, with a clear emphasis on helping readers make more informed decisions with their money.
