Meta strikes multi-billion-dollar AI chip deal with Google: Will the new collaboration pay off?

Meta Platforms Inc. (META, Financials) has signed a multi-billion dollar agreement to rent artificial intelligence chips from Alphabet Inc.'s Google.

According to a report by The Information, the multi-year deal will allow Meta to use Google's Tensor Processing Units to develop advanced AI models.

The agreement comes as major technology firms increase spending on AI infrastructure to meet growing demand.

The company has also signed agreements with NVIDIA Corp for current and future AI processors.

Google has been promoting its in-house TPUs as an alternative to Nvidia's GPUs, positioning them as a driver of cloud revenue growth.

The report said Meta is also in discussions to purchase TPUs directly for its data centers as early as next year.

The report of the multi-year deal comes as companies pour billions into chips and AI infrastructure to meet demand for artificial intelligence.

Google has also signed an agreement with an unidentified large investment firm to fund a joint venture that would lease TPUs to other customers, the report added.

Earlier this week, Advanced Micro Devices said it would sell up to $60 billion in AI chips to Meta. The Facebook owner earlier this month also signed a deal with Nvidia to buy its current and future AI chips.

Reuters reported in December that Google was pushing to make its Tensor Processing Units (TPUs) a viable alternative to Nvidia's market-leading GPUs. TPU sales have become a crucial growth engine of Google's cloud revenue as it seeks to prove to investors that its AI investments are generating returns.

The Information reported Thursday that Meta is also in talks with Google to buy the TPUs for its data centers as early as next year, though the status of those discussions could not be determined.

Additionally, Meta and Google have not commented on the matter yet.

Investors will likely monitor how expanding chip commitments affect capital spending and long-term returns as AI competition intensifies.