Broadcom’s Quiet Ascent: A Case for Caution in 2026

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AMD‘s recent dalliance with OpenAI has sent ripples through the AI investment pool, though not all the ripples are as promising as they appear. The deal-engineered with favorable terms for OpenAI-has AMD positioning itself as a key player in AI chips, with an expectation that this will accelerate their growth. Yet, despite the rhetoric, I remain skeptical. AMD may be riding high today, but the deeper currents suggest there are more stable ships to board.

If I were to place my bet, it would be on Broadcom (AVGO), a name that has quietly crept into the AI conversation. The partnership with OpenAI is recent, though still shrouded in some ambiguity. What is clear, however, is that Broadcom is better poised for long-term success, a fact that could reveal itself as soon as 2026.

Broadcom’s Custom AI Accelerators: A Growing Engine

Broadcom, to the casual observer, may appear as a jack-of-all-trades. From cybersecurity to mainframe hardware, its portfolio is broad. Yet, its real promise lies in its artificial intelligence division, which has been showing remarkable growth in recent quarters. In Q3 FY 2025, Broadcom’s AI semiconductor revenue surged by 63%, reaching $5.2 billion. If Q4 projections hold, the company will close the year with $6.2 billion in revenue from this division alone-proof, perhaps, that this venture is far more than a speculative exercise.

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At the heart of Broadcom’s strategy are two core products: connectivity switches and custom AI accelerators. The switches, crucial for data centers, serve to recombine data once it’s been processed by various computing units. There’s demand here, but it’s far eclipsed by the growing need for Broadcom’s custom AI accelerators.

For AI, companies like AMD and Nvidia dominate with their GPUs, the all-purpose tools of the trade. These chips excel in AI, but they also find their way into cryptocurrency mining, engineering simulations, and other non-AI uses. This versatility does come at a price, and as always, the end users end up funding this flexibility. AMD and Nvidia’s customers, eager for efficiency, also have to contend with the inflated cost structures inherent in such “do-it-all” solutions.

Broadcom offers a more refined solution. Its custom AI accelerators, known as XPUs, are developed in close collaboration with clients. This tailored approach reduces costs and enhances performance, making the XPUs an attractive alternative. We’re at the dawn of their popularity, and the demand for such specialized chips is only going to increase.

Although Broadcom does not release the names of its clients, analysts have already connected the dots. The whispers around OpenAI and Broadcom’s $10 billion deal-part of its earnings call-further suggest that the company is on the verge of a significant breakthrough. With an expanding client base, Broadcom’s addressable market is expected to reach between $60 billion and $90 billion by 2027. The growth potential here is undeniable, and with it, the prospect of Broadcom’s stock soaring as new clients are brought on board.

Yet, like all investments, Broadcom’s future is far from certain.

The Cost of Broadcom’s Premium

It would be naive to assume that any investment is risk-free. Broadcom, despite its promising outlook, is priced at a premium. The stock trades at over 51 times its forward earnings-a valuation that, though cheaper than AMD’s 60 times, still demands caution. At these levels, no one can honestly claim Broadcom is “cheap.” While the valuation might seem justified given the company’s growth prospects, it’s important to remember that the stock market often inflates such expectations.

Analysts, ever optimistic, may be understating Broadcom’s true potential, which could make its current stock price appear deceptively affordable. But consider this: If Broadcom meets its forecast for 2027 and taps into the lower end of its market range, its revenue could double, pushing the company’s current near-$60 billion revenue total into the stratosphere.

Time will reveal whether these projections are grounded in reality or merely wishful thinking. If they prove accurate, however, it will become clear that Broadcom is the smarter, more strategic choice for investors looking to capitalize on AI’s inevitable rise. AMD, in comparison, might be a flashier play, but Broadcom offers stability and a quieter ascent-a more thoughtful alternative.

In the end, the choice is simple. Broadcom’s path forward is clearer, its growth more probable, and its stock-while not “cheap”-remains a calculated gamble. Whether it will deliver remains to be seen, but at least the stakes are tangible.

Let’s see if 2026 rewards the careful observer. 🧐

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2025-10-13 03:17