Alphabet’s AI Chip Surprise Revives Bull Case for Beaten-Down Semiconductor Stocks

Alphabet (GOOGL) stock climbed about 3% on Monday. The trigger was a report from The Information that Google is building a new AI chip, called Frozen v2, to run its Gemini models up to 10 times more efficiently.

The timing matters, because chip stocks just closed their worst week in more than a year. Now Wall Street is asking whether the dip is a chance to buy.

Alphabet AI Chip Targets 10x Efficiency by 2028

Frozen v2 takes a shortcut. It bakes parts of the Gemini model directly into the silicon, according to the report. Less data moves around, so each answer costs less power.

Google engineers think the chip could serve six to 10 times more tokens per unit of power than its newest tensor processing units (TPUs). Tokens are the small chunks of text AI models produce. For scale, Ironwood, Google’s seventh-generation TPU, only doubled the performance per watt of its predecessor.

There is a catch. The chip works with future Gemini models only if Google keeps the same core design. Launch is targeted for 2028, and it will support the TPUs Google has built since 2016, not replace them.

Google needs the extra power badly. A compute shortage has reportedly forced Google Cloud to turn away business. Last month, Google agreed to pay SpaceX nearly $1 billion a month to plug the gap. Amazon, Microsoft, and Meta are building their own AI chips too.

Monday’s bounce also clawed back part of a sharp Google stock slide before Wednesday’s earnings.

Wall Street Sees Value After the Semiconductor Rout

Last week’s damage was steep. The VanEck Semiconductor ETF (SMH) fell 8.9%, its worst week since April 2025, when it lost 15%. The Philadelphia SE Semiconductor Index (SOX) dropped nearly 10%.

Fear came from several sides. China’s Kimi K3, an open-weight model from startup Moonshot AI, raised fears of an AI shakeout. Cracks had already formed in the AI memory stock rally, and big funds spent weeks pulling back from Nvidia.

Still, several banks smell opportunity. Morgan Stanley’s Joseph Moore called the memory selloff an attractive entry point. He favors Nvidia (NVDA) and Broadcom (AVGO). Mizuho analyst Vijay Rakesh agreed in a client note.

“We believe there is a lot of gas left in the tank as AI capex … and [gigawatt] power installations ramp well beyond 2028-29E … all driving semiconductor demand with a wide supply gap.”

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JPMorgan’s Mislav Matejka expects buyers to return soon. He argues new chip supply will not arrive before 2028. However, Evercore’s Mark Lipacis sees another 10% to 15% of downside first. Even so, his data shows the SOX typically bounces 36% within 20 weeks of corrections like this one.

All eyes now turn to Alphabet’s earnings on Wednesday. The report will show whether Google backs its big chip talk with even bigger spending.

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