The Silicon Valley ‘AI factory’ at the heart of the tech race

Faisal IslamEconomics editorBBCGoogle’s ultra-private CEO Sundar Pichai is exhibiting me round Googleplex, its California headquarters. A walkway runs alongside the size of it, passing by a large dinosaur skeleton, a seashore volleyball pitch and dozens of Googlers lunching beneath the hazy November solar. Nevertheless it’s a laboratory, hidden away behind the campus behind some bushes, that he’s most excited to indicate me.That is the place the invention that Google believes is its secret weapon is being developed.Generally known as a Tensor Processing Unit (or TPU), it seems like an unassuming little chip however, says Mr Pichai, it’s going to sooner or later energy each AI question that goes via Google. This makes it doubtlessly some of the necessary objects on this planet financial system proper now.”AI is probably the most profound know-how humanity [has ever worked] on,” he insists. “It has potential for extraordinary advantages – we should work via societal disruptions.”However the complicated query lingering over the AI hype is whether or not it’s a bubble liable to bursting – as, in that case, it might be a spectacular burst akin to the dotcom crash initially of the century, with penalties for us all.Bloomberg by way of Getty ImagesA walkway runs alongside the size of Googleplex, passing by a large dinosaur skeleton, a seashore volleyball pitch and workers lunching within the winter sunThe Financial institution of England has already warned of a “sudden correction” in world monetary markets, saying “market valuations seem stretched” for tech AI corporations. In the meantime. OpenAI boss Sam Altman has speculated that “there are various components of AI that I feel are form of bubbly proper now”.Requested whether or not Google could be immune from a possible bubble burst, Mr Pichai stated it may climate that potential storm – however for all his starry-eyed pleasure across the potentialities of AI, he additionally issued a warning: “I feel no firm goes to be immune, together with us.”So why, then, is Google investing greater than $90bn a 12 months within the AI build-out, a three-fold improve in simply 4 years, on the very second these solutions are being mentioned?The large AI surge – and the massive riskThe AI surge – of which Google is only one half – is, in money phrases, the most important market growth the world has seen.Its numbers are extraordinary – there may be $15 trillion of market worth at Google and 4 different tech giants whose headquarters are all inside a brief drive of each other.Chipmaker turned AI methods pioneer Nvidia in Santa Clara is now price greater than $5 trillion. A ten-minute drive south, in Cupertino, is Apple HQ, hovering round $4 trillion; whereas quarter-hour west is $1.9 trillion Meta (beforehand Fb). And within the centre of San Francisco, OpenAI was not too long ago valued at $500bn.Google’s dad or mum agency Alphabet, headquartered in Mountain View, is price about $3.3 trillion, and has virtually doubled in worth since April, (which each Googler on campus will little doubt be feeling via the worth of their inventory choices)The purely monetary penalties of this pattern are vital sufficient. The worth of the shares in these firms (and some others exterior Silicon Valley, similar to Microsoft in Seattle) have helped cushion the US financial system from the impression of commerce wars, and stored retirement plans and investments buoyant – and never simply within the US.But it comes with an enormous danger. That’s, the unbelievable dependence of US inventory market progress on the efficiency of a handful of tech giants. The Magnificent 7 – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla – collectively comprise one third of the valuation of America’s complete S&P 500.And that market worth is now extra extremely concentrated in a couple of corporations than it was through the dotcom bubble in 1999, in line with the IMF.Mr Pichai factors out that each decade or so come these “inflection factors”: the private laptop, then the web within the late Nineteen Nineties, adopted by cellular and cloud. “Now it is clearly the period of Synthetic Intelligence.”However as for the massive query – is it a bubble?Mr Pichai argues there are two methods of fascinated about it. First, there may be “palpably thrilling” progress of companies that individuals and firms are utilizing. However he concedes: “It is also true after we undergo these funding cycles, there are moments we overshoot collectively as an trade…”So I feel it is each rational and there are components of irrationality via a second like this.”Sundar Pichai: “We’ve got this phrase at Google, which is ‘uncomfortably thrilling’.”Now, a distinction is rising within the markets between these companies that depend on typically borrowed cash and sophisticated offers to entry the chips that energy their AI, and the most important tech firms, similar to Google, Microsoft and Amazon, which may fund funding in chips and information from their very own pockets. Which brings us to Google’s personal silicon chips, or their prized TPUs.’Restricted’: contained in the silicon chip labThe lab, the place they’re examined, is the dimensions of a five-a-side soccer pitch with a mesh of multi-coloured wires and deep blue blinking lights. Indicators throughout learn: “restricted”.What’s hanging is the sheer noise – that is right down to the cooling methods, that are wanted to assist management the temperature of the chips, which may get extremely sizzling when crunching trillions of calculations.Google’s TPU cluster is growing the chip that would quickly energy all its AI searchesThe TPUs are designed to assist energy AI machines. And so they work in another way from different sorts of chips.The CPU (central processing unit) is the first part of a pc – primarily its mind – that performs a lot of the processing and management capabilities, whereas GPUs (graphics processing models) carry out extra specialised processing, executing many parallel duties without delay – this will embrace AI. Nevertheless Asics (application-specific built-in circuits), are chips custom-built for a particular goal, for instance, a particular AI algorithm. And the TPU is a specialist Google-designed kind of Asic.There are a number of variations of TPUs: the Ironwood is the most recent. The TPUs are a part of Sundar Pichai’s general technique of proudly owning your entire scientific provide chain – from the silicon to the information, plus the AI fashions and the whole lot in betweenA core facet of the AI growth has been the mad sprint to amass plenty of top-performing chips and put them into information centres (or the bodily services that retailer, course of and run massive quantities of information and software program).Nvidia’s boss Jensen Huang as soon as coined the time period “AI factories” to explain the huge information centres stuffed with pods and racks of tremendous chips, related to very large power and cooling methods. (Tech bosses similar to Mark Zuckerberg have referred to some being the dimensions of Manhattan. The Google TPU lab is considerably extra modest, testing out the know-how for deployment elsewhere.)Tales abound of tech bros begging chip makers for a whole lot of hundreds of those extremely engineered items of silicon. Take the latest dinner at Nobu in Palo Alto, the place Elon Musk and Larry Ellison, the founder and head of Oracle, tried to woo Nvidia’s Jensen Huang, to promote them extra of them.As Mr Ellison put it: “I’d describe the dinner as me and Elon begging Jensen for GPUs. Please take our cash – no, no take extra. You are not taking sufficient. We want you to take extra, please!”It’s exactly the race to entry the facility of as many as doable of those excessive efficiency chips, and to scale them up into large information centres, that’s driving an AI growth – and there is a notion that the one strategy to win is to maintain spending.The chips race – and the OpenAI stormThe terrace of the Rosewood Sand Hill resort, a sprawling 16-acre property close to the Santa Cruz mountains that serves crab rolls and $35 signature vodka martinis, is the place the massive Silicon Valley deal-making will get achieved. It is near Stanford College and Meta’s HQ, in addition to the headquarters of main enterprise capital corporations.There are whispered rumours about who can be subsequent to announce customised AI chips – Asics – to compete with Google and Nvidia.Simply earlier than I visited, one thing of a storm was brewing in regards to the funding plans of OpenAI, which Elon Musk co-founded. The agency, which began as a not-for-profit however has since established a industrial construction, has been the main target of an online of cross-investments involving shopping for up chips and different laptop {hardware} wanted for AI processing.Few within the trade doubt OpenAI’s phenomenal consumer progress – particularly the recognition of its chatbot, ChatGPT. It has ambitions to design its personal {custom} AI chips, however some have speculated about whether or not it’d want authorities assist to attain this.Getty ImagesSam Altman: ‘What we do suppose may make sense is governments constructing (and proudly owning) their very own AI infrastructure’In a podcast episode that aired final month, an OpenAI investor questioned how the corporate’s spending commitments tallied with its revenues, to which co-founder Sam Altman shot again, difficult the income figures quoted, and including: “If you wish to promote your shares, I am going to discover you a purchaser. Sufficient.”He has since shared a prolonged submit on X, explaining, amongst different issues, that OpenAI is taking a look at commitments of about $1.4 trillion over the following eight years and why he believes now could be the time to put money into scaling up their know-how.”I don’t suppose the federal government ought to be writing insurance coverage insurance policies for AI firms,” he stated.However he additionally stated: “What we do suppose may make sense is governments constructing (and proudly owning) their very own AI infrastructure.”Getty ImagesElon Musk and Larry Ellison are stated to have begged Nvidia’s Jensen Huang to promote them extra top-performing chips throughout a dinner in NobuElsewhere, there have been notable very latest falls in share costs of AI infrastructure firms – Coreweave, a start-up that provides OpenAI, noticed its shares lose 26% of their worth earlier this month.Plus, there have been some reactions in markets for perceived credit score danger amongst different corporations. And whereas most of those tech share costs have typically climbed greater over the course of 2025, there was a gentle dip extra typically previously few days.ChatGPT versus Gemini 3.0None of this has dampened the thrill over AI’s potential inside the trade. Google’s shopper AI mannequin, Gemini 3.0, launched to nice fanfare earlier this week — this may pitch Google in a direct battle with OpenAI and its still-dominant ChatGPT for the market share.What we do not but know is whether or not it marks an finish to the times of chatbots going rogue and recommending glue as a pizza ingredient. So, is the tip results of all this unbelievable funding is that info is much less dependable, I requested Mr Pichai.”I feel in case you solely assemble methods standalone and also you solely depend on that, [that] could be true,” he instructed me. “Which is why I feel we have now to make the knowledge ecosystem must be a lot richer than simply having AI know-how being the only product in it.”However I put it to him that reality issues. His response: “reality issues”.Neither is the opposite huge query dealing with tech right this moment dampening the keenness round advancing AI’s potential. That’s: how on Earth to energy it?By 2030, information centres around the globe will use about as a lot electrical energy as India did in 2023, in line with the IMF. But that is additionally an age the place power provide is beneath stress by governments committing to local weather change targets.I put this to Google’s Mr Pichai, asking whether it is coherent to have ambitions to generate 95% of electrical energy from low-carbon sources by 2030 – because the UK authorities does – and in addition be an AI superpower?”I feel it is doable. However I feel for each authorities, together with the UK, it is necessary to determine the way to scale up infrastructure, together with power infrastructure.”You do not need to constrain an financial system primarily based on power,” he provides. “I feel that can have penalties.”Classes from the 2000 dotcom bustYears in the past, as a fledgling reporter I minimize my tooth within the 2000 dotcom bubble. It adopted a well-known speech by Federal Reserve Governor Alan Greenspan about “irrational exuberance”. In that point I interviewed Steve Jobs twice, and some years later questioned Mr Pichai’s predecessor Larry Web page, and commentated stay on the collapse of WorldOfFruit.com. By means of all of it, one lesson grew to become clear: that even within the worst-case eventualities and the hardest of crashes, disaster is not assured for all.Take Amazon – its share value slumped to $6 and its market capitalisation fell to $4bn throughout that crash, but some 25 years on Jeff Bezos and his firm are very a lot going sturdy. At the moment Amazon is price $2.4 trillion.The identical would, inevitably, be true of firms shaken by a possible AI bubble burst.WireImageGoogle’s co-founder Larry Web page helped steer it via the dotcom crashPlus there may be one other looming issue which will nicely clarify why so many in Silicon Valley – and past – are blind to, or maybe selecting to not, acknowledge this danger, and pushing on regardless.That’s, the attraction of the glittering prize on the finish: reaching synthetic common intelligence (AGI).That is the purpose at which machines match human intelligence, one thing many imagine is inside attain. Or past that, reaching synthetic super-intelligence (ASI), the purpose at which machines surpass our intelligence.However I used to be additionally instructed one thing else that was thought-provoking by a Silicon Valley determine – that it would not matter whether or not there actually is a bubble or if it bursts. Step again and what’s going on within the greater image is a world battle for AI supremacy, with the US towards China taking centre stage. And whereas Beijing funds these developments centrally, within the US it’s a messy however productive free market free for all, which suggests trial and error on an epic scale.For now, the US has superiority in silicon over China – firms like Nvidia with their GPUs and Google with their TPUs can afford to speed up into the storm.Others will certainly fail, and spectacularly so, affecting markets, shopper sentiment and the world financial system. The bodily footprint left behind, nonetheless, containing sheer computing firepower for the deployment of mass AI applied sciences, will inevitably form our financial system and will nicely additionally form how we work and study – and who dominates the world for the remainder of the twenty first Century.BBC InDepth is the house on the web site and app for the very best evaluation, with contemporary views that problem assumptions and deep reporting on the most important problems with the day. Now you can join notifications that can provide you with a warning at any time when an InDepth story is revealed – click on right here to learn the way.