Alphabet shares climbed nearly 3% Monday after a report surfaced that Google is building a new artificial intelligence chip called Frozen v2. The chip is designed to run the company's Gemini AI models up to 10 times more efficiently by embedding parts of the model directly into the silicon. That could translate into serving 6 to 10 times more tokens per unit of power than Google's newest TPU, Ironwood, which itself only doubled performance per watt from its predecessor.
What Frozen v2 promises
Frozen v2 is targeted for launch in 2028. It will only work with future Gemini models if the core design remains unchanged. Google says the chip will support existing TPUs, not replace them. The efficiency gains come from integrating model architecture into the chip's hardware, a shift that could cut the energy cost of running large language models significantly.
The chip's development comes as Google faces a serious compute shortage. The company has had to turn away business from cloud customers because it doesn't have enough AI compute capacity. To fill the gap, Google agreed to pay SpaceX nearly $1 billion per month. Amazon, Microsoft, and Meta are all building their own AI chips too, so the race to control the hardware that powers AI is heating up.
The compute crunch behind the chip
That shortage isn't just a Google problem. The entire industry is scrambling for more efficient hardware. The VanEck Semiconductor ETF (SMH) fell 8.9% last week, and the Philadelphia SE Semiconductor Index (SOX) dropped almost 10% — their worst week since April 2025. The sell-off was fueled by fears that China's Kimi K3 open-weight model from Moonshot AI could shake up the AI landscape, and by cracks in the AI memory stock rally, with funds pulling back from Nvidia.
Still, analysts see opportunity. Morgan Stanley and Mizuho both view the pullback as a buying opportunity. JPMorgan expects buyers to return. Evercore warns there could be 10-15% more downside, but notes that a typical 36% bounce follows within 20 weeks. Those numbers suggest investors are trying to figure out whether the chip boom is resetting or just pausing.
What comes next: Alphabet's earnings
Alphabet is scheduled to report earnings on Wednesday. That report will indicate whether Google backs its chip talk with higher spending. Investors will be watching for signs that the company is willing to invest in hardware to ease the compute crunch and keep cloud customers from leaving. If Alphabet signals a big capital expenditure increase, it could confirm that the Frozen v2 project is more than a research experiment.
For now, the chip market is in a cold spell. The question is whether next week's earnings will warm it up again.
