Google Just Shared Bad News for Nvidia, and Even Worse News For CoreWeave and Nebius
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Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL) CEO Sundar Pichai shared some interesting news during the company’s first-quarter earnings call. Google will start to deliver its custom AI accelerator chips, Tensor Processing Units (TPUs), to a select group of customers for their own data centers. The company has already signed a deal to sell chips to Anthropic and has a tentative agreement to sell directly to Meta Platforms. Now it has a third customer.
Google is partnering with Blackstone on a joint venture to build a new neocloud compute-as-a-service company. Blackstone will provide $5 billion of capital, and Google will provide its TPUs and software. The move is another step in taking market share from Nvidia, but it presents a real competitive threat to neocloud leaders CoreWeave(NASDAQ: CRWV) and Nebius Group (NASDAQ: NBIS).
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Why is Google building a new cloud computing business?
Google Cloud is already the third-largest cloud computing platform in the world and growing quickly. Alphabet is spending tens of billions of dollars adding capacity to it every quarter. Investors may look at the new joint venture as superfluous.
But partnering with Blackstone provides additional capital while enabling the new company to build data centers focused exclusively on AI compute using TPUs. That can allow the company to compete on price and increase adoption of Google’s TPUs. Indeed, part of the strategy may be to get another guaranteed buyer for TPUs.
“Some of it helps us get more economies of scale, scale in our overall compute environment as well. And so, it helps us invest in the cutting edge, which we need to do with the next generation,” Pichai said during the Q1 2026 earnings call in response to a question about selling TPUs to third parties.
In other words, Alphabet wants to grow demand for its TPUs because it creates greater economies of scale. It can go to its manufacturing partner, Taiwan Semiconductor Manufacturing, with a big order and demand a level of priority it didn’t receive before. That can enable it to grow faster, reinvest more in the business, and develop a virtuous cycle.
That’s bad news for Nvidia. It currently holds a dominant position in the AI accelerator market, particularly in the neocloud segment. If Google and Blackstone’s joint venture proves successful, it could significantly erode that market share and drive some of its biggest customers to turn to Google’s chips. Not to mention, it’s also a Taiwan Semiconductor customer competing with Google for limited capacity.
For now, the threat level is relatively low. But Google is signaling big ambitions.
The big new neocloud company
A well-capitalized neocloud company could be a significant threat to CoreWeave and Nebius. The joint venture plans to deploy 500 megawatts (MW) of TPU capacity by next year and scale quickly thereafter. It also has significant competitive advantages over the less-capitalized neoclouds.
CoreWeave recently surpassed 1 gigawatt (GW) of active power, and it has 3.5 GW of contracted power in the pipeline. It has around $4 billion of cash on its balance sheet, but it also holds around $20 billion of debt. That said, the debt is secured by its long-term contracts, which climbed to nearly $100 billion last quarter.
Indeed, leverage is a key strategy in scaling neocloud businesses, and the Google-Blackstone joint venture will rely on it as well. The company expects to have $25 billion of total spending power, which will enable it to grow quickly if the demand is there.
Nebius, meanwhile, is about a year behind CoreWeave in building out its capacity. It expects to reach 800 MW to 1 GW of connected power by year’s end. That’ll give it a head start over the new joint venture, and it has $9.3 billion in cash after a recent capital raise.
But the big threat to both Nebius and CoreWeave is the potential for the new joint venture to put pressure on their pricing. While both have significant contracted backlogs, the new joint venture may be able to steal away future business by undercutting their pricing. With Google’s vertical integration of its TPUs and software inside the new data centers, combined with Blackstone’s ability to source real estate and energy, this should lead to a significant cost advantage. That adds another level of uncertainty to a couple of already highly leveraged and uncertain businesses in CoreWeave and Nebius.
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Adam Levy has positions in Alphabet, Meta Platforms, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Alphabet, Blackstone, Meta Platforms, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
