Alphabet (GOOGL 1.43%) (GOOG 1.52%) shocked investors when the company set a capital expenditure (capex) budget of between $175 billion and $185 billion for 2026 when it reported its fourth-quarter results. That's a massive increase from the $91 billion in capex it spent in 2025.
About 60% of its spending will go toward servers and about 40% toward longer-duration assets such as data centers and networking equipment. Within servers, much of that spending will go toward semiconductor chips. Meanwhile, networking equipment, such as Ethernet switches and fiber optic cables, along with buildings and power substations, are included in long-duration assets.
The biggest winner from this spending will likely be Broadcom (AVGO 1.21%).
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Benefiting from custom chips and networking
Broadcom is the co-developer of Alphabet's tensor processing units (TPUs), which Alphabet uses to run its internal AI workloads. While Alphabet provides the designs, Broadcom supplies the critical intellectual property and manages the relationship with foundries, such as Taiwan Semiconductor Manufacturing, to turn the designs into physical chips that can be manufactured at scale. Broadcom, meanwhile, books the revenue for each chip produced. This is estimated to be around $13,000. While a lot, it's less than half the cost of one of Nvidia's graphics processing units (GPUs).
Meanwhile, Broadcom is also a leader in networking as well. Its Tomahawk Ethernet switches are the industry standard for large-scale data centers. It also provides high-performance fiber optical interconnect solutions and other components that AI data centers need. Broadcom's networking portfolio also carries higher gross margins than its custom AI application-specific integrated circuit (ASIC) chip business.
Based on Citigroup estimates, Alphabet accounted for nearly $13 billion in Broadcom's ASIC revenue in fiscal 2025. That would have accounted for nearly 17% of Alphabet's capex over the same period (note they have mismatched fiscal years). Bump up the percentage given Alphabet's push toward TPUs over GPUs, and its TPU revenue from Alphabet could potentially double or even triple next year. It should also see a huge surge in networking revenue as well.
NASDAQ: AVGO
Key Data Points
Meanwhile, Broadcom also received a $21 billion order from Anthropic for TPUs to be used for its AI workloads with Google Cloud to be delivered this year. With Broadcom producing revenue of just $63.9 billion in fiscal 2026, its total revenue could double this fiscal year.
With more customers also turning to Broadcom to help them design their own custom chips, including OpenAI, and given the success of Alphabet's TPUs, Broadcom has one of the best growth runways in the AI infrastructure space. Meanwhile, my prediction is that Broadcom's stock will be the biggest winner from Alphabet's spending spree.
