What makes you so sure it is all the silicon difference and not just AWS pricing their product at a more profitable price point?

These costs also ignore transferring and storing massive data sets in the cloud. In general the cloud is a huge pain and I'd avoid it like the plague unless I was caught and really, really needed the scalability. But even then that only works if you have a scalable implementation of the algorithm you are working on.

Maybe, maybe not. They have the advantage that they make the hardware, so they're not paying as much retail as nvidia is charging them for their cards. I don't think there's any way you can say the TPU is cheaper compared to buying your own system. If Google decides to release it to the public, that's a different story. Also, keep in mind that Google allows you to mix and match the CPU core count to GPU, whereas AWS doesn't. It's possible that the Google cloud price with fewer CPU cores will be much cheaper than the AWS instance.