If you want to outperform the market, you're going to need to find stocks that can outpace the S&P 500. While that may not sound that difficult, J.P. Morgan analysts found that between 1980 and 2020, about two-thirds of stocks in the Russell 3000 Index, which extends the stock universe a bit, underperformed. However, those that outperform often do so by a wide margin.
Given that context, let's examine two stocks I believe can outperform next year.
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Broadcom
The market right now is being driven by artificial intelligence (AI) stocks, and with spending on data center infrastructure only increasing, I think that trend should continue. One company that looks particularly well-positioned to start capitalizing on this opportunity is Broadcom (AVGO 2.83%).
Nvidia has dominated the early innings of AI infrastructure, but as the market starts to turn toward inference and hyperscalers (companies that own large data centers) look to get more bang for their buck on their capex spending, more are developing their own custom AI ASICs (application-specific integrated circuits). ASICs are pre-programmed chips built for specific purposes, and as such can improve performance and be more energy efficient. They require high upfront costs to develop, but can save companies money over the long run.
NASDAQ: AVGO
Key Data Points
Meanwhile, the company that hyperscalers are increasingly turning to help them design these custom AI chips is Broadcom. Broadcom helped Alphabet make its well-regarded Tensor Processing Units (TPUs), which led to other companies flocking to its services. It said its three custom AI chip customers furthest along are a $60 billion to $90 billion opportunity in its fiscal 2027 alone, while it also recently announced that a fourth customer, perhaps Apple, has placed a $10 billion order for next year.
Meanwhile, it also recently signed a deal to help OpenAI design and then deploy 10 gigawatts of AI chips in the coming years. With 1 gigawatt of power equaling about $35 billion in chips, this is a huge deal.
Broadcom is on pace to generate just over $63 billion in total revenue this fiscal year, so the growth opportunity in front of it is huge. This should help propel its stock to outperform next year as this growth comes closer to reality.
Amazon
While Amazon's (AMZN +0.40%) stock has underperformed this year, it could be setting it up to outperform in 2026. The stock's underperformance in 2025 can largely be tied to the potential impact of tariffs on its e-commerce business, and the slower pace of growth of Amazon Web Services (AWS) compared to its cloud computing rivals.
However, Amazon has made great strides behind the scenes to become a leader in robotics and AI, which is driving huge operational efficiencies in its e-commerce operations. Its large sponsored ad business, which carries high gross margins, has also been seeing strong growth, helping the company become one of the largest digital advertisers on the planet.
Together, this has led to Amazon's North American segment seeing tremendous operating leverage, as demonstrated by the 28% jump in adjusted operating income it saw in Q3 on just an 11% increase in sales. If there is any pullback in tariffs, Amazon is set to be a huge winner.
NASDAQ: AMZN
Key Data Points
At the same time, AWS is just starting to see its growth begin to accelerate. Revenue rose 20% in Q3, up from 17.5% growth in Q2, and the company's big Project Rainier, which serves Anthropic, is just starting to ramp up. The AI cluster is using 500,000 of its custom Trainium 2 AI chips, and is expected to reach 1 million by year's end.
Meanwhile, Amazon just signed a $38 billion cloud computing deal with OpenAI in which the AI model company will immediately begin running AI workloads on its data center infrastructure that currently runs on Nvidia graphics processing units.
With the stock trading at under 30 times next year's analyst earnings estimates, its valuation is historically attractive. Meanwhile, with growth looking ready to pick up, Amazon's stock looks primed to rebound in 2026 and outperform the S&P 500.
