Alphabet Inc. (GOOG) and (GOOGL) are heading into their third-quarter report with investors focused on Google Cloud growth, AI competition, capital spending and the expanding revenue opportunity from the company's in-house AI chips.

BNP Paribas analyst Nick Jones remains bullish on Alphabet, citing continued Google Cloud momentum, durable advertising trends and a potentially sizable opportunity from external TPU sales.

Jones maintains an Outperform rating and raised his price forecast to $450 from $420, implying 28% upside from the Oct. 9 price of $351.70.

Cloud and AI in Focus Ahead of Earnings

Alphabet will report third-quarter results on Oct. 28.

Jones said investor expectations for Google Cloud remain elevated, while expectations for Search appear softer to roughly in line with consensus.

He said some investors expect Cloud growth above 100%, with estimates reaching as high as 140%, compared with consensus of about 89%. Advertising growth expectations stand near 13%, while investors are looking for diluted EPS above $3.20 versus the $3.03 consensus estimate.

Jones expects Alphabet to raise its 2026 capital-expenditure outlook by $5 billion to $10 billion, reflecting management's call for a "significant" increase in 2027 spending and higher component costs.

He said Google Search continues to dominate traffic despite growing AI adoption. ChatGPT leads AI traffic, followed by Gemini and Claude, while third-party data supports continued Gemini adoption.

TPU Sales Could Create $80 Billion-$100 Billion Opportunity

Jones sees external sales of Alphabet's Tensor Processing Units as an increasingly important growth driver.

BNP Paribas estimates Alphabet has secured more than 5 gigawatts of identifiable TPU capacity commitments from Anthropic and Blackstone, with most deliveries expected to begin in 2027.

Jones estimates those commitments could generate $80 billion to $100 billion in cumulative revenue through 2028.

He forecasts more than $4 billion of TPU revenue in 2026, followed by more than $40 billion in 2027 and more than $30 billion in 2028. TPU revenue could represent about 10.6% of Google Cloud Platform revenue by 2028.

Higher Sales Come With Margin Pressure

Jones cautioned that expanding TPU sales could pressure Google Cloud profitability in the near term.

BNP Paribas estimates TPU sales could reduce Cloud operating-income margins by about 115 basis points in 2027 and more than 50 basis points in 2028, although they should still add meaningfully to operating income dollars.

The firm raised both its revenue and earnings estimates to reflect the additional TPU opportunity.

Jones now values Alphabet at 26.5 times his estimated 2028 diluted EPS of $17, supporting the $450 price forecast. His previous valuation used 30 times estimated 2027 diluted EPS of $13.85.

Jones said Alphabet remains positioned for strong third-quarter results, but investor perceptions of its competitive position in AI could matter more to the stock than underlying fundamentals as new products compete for attention.

Price Action: Alphabet shares were up 0.85% at $351.92 and Alphabet shares were up 0.90% at $355.89 at the time of publication on Tuesday, according to market data.