Google Data Center AI -- In Your Pocket?

(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)

When the Google Pixel smartphone launches this fall it will have a new Tensor processor designed in-house. That is a bigger deal than most investors might think.

Rick Osterloh, Google senior v.p. for hardware spent last week doing interviews with media outlets. He was telling the story of new processors that change what is possible on a mobile device.

It is a big deal for companies like Cadence Design (CDNS).

Alphabet (GOOGL), the parent of Google would not be the first big tech company to take processor design in-house. Apple (AAPL) charted the course in 2007 when its industry-leading A-series chips gave iPhones best-in-class performance. Samsung followed in 2011 with the development of Exynos line of processors.

Since then Apple remade its laptop lineup with M-Series chips. And Tesla (TSLA) engineers designed new silicon for its artificial intelligence crunching self-driving software.

AI is a big part of the new Google chip designs, too.

Gizmodo reported Monday that Osterloh says the System on a Chip design is the very first of its kind for a mobile device because it runs data center level AI processing locally. In addition to better privacy, running powerful AI applications on the device means a faster, cleaner user experience.

Google’s Pixel smartphone is renowned for its excellent computational software yet Osterloh showed off even better motion and video photography. He also demoed real-time dictation with punctuation. And the wow factor was captioned, live-streaming language translation with native software called Interpreter Mode.

In the past, Google has been able to push the envelope with cutting-edge software. Bespoke, highly integrated hardware will force peers to catch up.

Cadence Design Systems makes the computational software engineers use to design complex SoCs. As more companies move away from off-the-shelf silicon, the San Jose, Calif.-based company is in the right place at the right time to provide solutions.

Shares are on the verge of an important breakout through the $150 level. Investors should consider news positions on pullbacks.