Few stocks had as strong a 2025 as Broadcom (AVGO 1.24%). Broadcom's stock caught fire following the tariff announcement recovery, and finished the year up 49.3%. While 2025 was great, investors need to look forward and see if it's worth buying more shares now or if there is another compelling investment opportunity.
I think Broadcom will undergo some massive changes throughout 2026, and its business shift makes it well worth holding on to. Broadcom's custom artificial intelligence (AI) accelerator chips are starting to become incredibly popular, and could even start challenging Nvidia in 2026 for AI computing dominance.
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Broadcom is becoming a chip investment
Broadcom does a lot of different things: It provides mainframe hardware and software, cybersecurity, virtual desktops via its VMWare acquisition, networking equipment, and countless other product lines. However, that's not where the business's focus is. Instead, it's pouring all of its efforts into building out its custom AI accelerator chip business.
Currently, graphics processing units (GPUs) from Nvidia are the go-to computing units for training and running artificial intelligence models. Make no mistake, GPUs are the most capable computing units available for processing a wide variety of workloads. However, with the progress that has been made on the generative AI front, most companies know what their workloads are going to look like. As a result, they can design a computing unit around these workloads. The chips are known as ASICs, or application-specific integrated circuits. These chips can offer better performance at a cheaper price point, at the cost of flexibility.
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Key Data Points
This business is growing at a rapid pace for Broadcom, as it's becoming the go-to partner for these chips. Broadcom is partnering directly with AI hyperscalers to design these chips, and gets revenue from each one that its clients purchase. The most famous example of a Broadcom ASIC is Google's Tensor Processing Unit (TPU), which has long been renowned for its capabilities.
In the fourth quarter of fiscal year 2025, ended Nov. 2, AI semiconductor revenue rose 74% year over year to $6.5 billion. For reference, Broadcom's total revenue for Q4 was $18 billion. In Q1, it expects $8.2 billion in AI semiconductor revenue, up 100% year over year. Q1's total revenue is projected to be $19.1 billion. Broadcom is quickly becoming an AI semiconductor investment, and this will help it soar throughout 2026.
As we progress throughout 2026, I'd expect AI semiconductors to make up more than half of Broadcom's sales, and even trend toward a higher amount, potentially three-fourths of sales by the end of 2026. This will allow the market to view the stock along the same lines as Nvidia, making it a great alternative investment in the AI arms race.
I think Broadcom's stock will be a strong pick for 2026, although it may not deliver near-50% gains as it did in 2025. However, I believe it's slated to beat the market, making it a great stock to buy now.
