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Anthropic and Google Cloud strike big AI chips deal

Executive Summary

Good news first: Alphabet Inc. (ticker: GOOGL/GOOG) has just struck a big deal with Anthropic, their cloud division (Google Cloud) will provide Anthropic with “tens of billions of dollars” of computing capability. 

What it means for Alphabet’s valuation: This deal helps accelerate cloud revenue growth, improves margin potential (since cloud infrastructure for AI is high-growth and high-margin compared to ad business), and strengthens Alphabet’s competitive positioning in the AI arms race.

In short: This is a value‐adding event for Alphabet, though with caveats (execution risk, competition, regulatory issues).

Context-Aware Metrics & Deal Details

Let’s dig into the specifics of the deal with Anthropic and how that feeds into Alphabet’s metrics:

• The agreement: Google Cloud will supply Anthropic with up to 1 million of its Tensor Processing Units (TPUs), plus more than 1 gigawatt of computing power coming online by 2026. 

• Value: News reports say “tens of billions of dollars” — not a precise number yet, but indicating a significant multi‐year revenue stream. 

• Implication: Analysts estimate that this deal alone might bring $8 billion to US $10 billion annually in additional cloud revenue for Alphabet. 

• Margins: Cloud business margins are still lower than its core ad business, but the incremental revenue from such high‐growth activities (AI infrastructure) offers upside in margin improvement over time. For example, an estimate referenced margins around ~20% for Google Cloud in this type of deal context. 

• Competitive positioning: This strengthens Google Cloud’s moat in the AI era, as Anthropic is an advanced AI model developer (competing with the likes of OpenAI). Being their infrastructure partner puts Alphabet in a powerful position.

Analysis: What This Means for Alphabet’s Valuation

Let’s parse how the deal impacts valuation—and what to watch out for.

Positive Impacts

1. Revenue growth acceleration – The $8-10 billion annual revenue bump estimate is meaningful relative to Alphabet’s cloud segment and overall business. It gives Alphabet a new growth vector beyond advertising.

2. Margin expansion potential – If the cloud/AI infrastructure business grows faster and economies of scale kick in, margins could improve, boosting earnings growth.

3. Strategic moat enhancement – Being an infrastructure partner to a major AI startup gives Alphabet stronger competitive leverage, which could justify a higher multiple.

4. Upward re‐rating catalyst – Market likes big, “tens of billions” deals. The share price already reacted positively to the news. 

Risks & Offsets

1. Execution risk – Integrating and scaling up 1 GW+ compute for Anthropic is challenging. Any delays, cost overruns, or switching by Anthropic to other providers could weaken benefits.

2. Competitive risk – Cloud/AI infrastructure is fiercely contested (Amazon.com, Inc. AWS, Microsoft Corporation Azure, others). Alphabet must deliver and maintain cost leadership.

3. Regulatory risk – The deal is subject to regulatory scrutiny in some jurisdictions, though the UK regulator has already cleared Alphabet’s earlier investment in Anthropic. 

4. Valuation already elevated – At ~18× earnings and $2+ trillion market cap, much of the positive news may already be priced in. The upside may be less “moonshot” and more incremental.

5. Dependency on cloud/AI tails – While advertising has been the core, cloud/AI will need to scale meaningfully to shift the business model. If growth slows, the multiple may revert to historic norms.

Valuation Implication

Putting numbers together: If Alphabet’s EPS is ~$9.56 (current) and assuming the cloud deal adds ~$0.50-$1.00 of EPS (just as an example) and the market applies maybe a 20× multiple (versus ~18× now), that could imply a share price in the ballpark of perhaps $280-$330 range.

So yes—this deal provides incremental upside. But it’s not a guaranteed leap to $400-$500 easily (unless there are further surprise expansions). The market will want proof of execution.