Chips, Sorcery, and the Bottom Line: 2026

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It began, as these things often do, with a lot of heat and a rather insistent demand for more. The dawn of Artificial Intelligence – or, as the Guild of Alchemists and Venture Capitalists prefers to call it, ‘Applied Thaumaturgy’ – saw Nvidia (NVDA +1.60%) establish a comfortable dominion. Their Graphics Processing Units, or ‘Thought Engines’ as the more poetic engineers termed them, provided the raw computational horsepower necessary to coax intelligence from silicon. The stock, naturally, responded with the enthusiasm of a goblin discovering a new hoard, rising a rather impressive 1,160% since early 2023. A perfectly understandable reaction, really, when you consider the sheer quantity of digital spirits being conjured.

However, the turning of the year – 2025, to be precise – witnessed a subtle shift in the currents. A changing of the guard, if you will. Broadcom (AVGO 1.61%) stock, with a quiet efficiency that would make a dwarven accountant proud, began to outpace Nvidia, rising 49% compared to Nvidia’s 39%. One might assume this was mere market fluctuation, a whimsical dance of numbers. But, as any seasoned macro strategist (and, indeed, any moderately observant troll) knows, such movements rarely occur in a vacuum. Let us delve into the reasons why Broadcom is gaining ground, and why I suspect this trend will not only continue but accelerate in 2026.

The Next Big Winner

The early days of the AI boom were characterized by a relentless pursuit of speed and flexibility. GPUs, with their inherent parallel processing capabilities, were the obvious choice for both training and ‘inference’ – the polite term for asking the digital spirit what it thinks. But priorities, as they often do, are shifting. Nvidia’s Thought Engines remain top-tier, and demand is still, undeniably, high. However, the sheer thermodynamic audacity of these devices has become a rather pressing concern. Running an army of Thought Engines is akin to powering a small city with disgruntled fire elementals. Expensive, and prone to unexpected outbursts.

This is where Broadcom’s Application-Specific Integrated Circuits – or ‘Soulstones,’ as the more imaginative engineers have dubbed them – come into play. These specialized chips aren’t built for general-purpose thought; they’re sculpted for specific, repetitive tasks. Think of it as commissioning a golem to perform a single, incredibly boring job. It won’t write poetry, but it will sort pebbles with relentless efficiency. As a result, data center and cloud operators are subtly adjusting the composition of their AI infrastructure, replacing a portion of their GPUs with Broadcom’s Soulstones to conserve energy and, crucially, money. The trade-off? These Soulstones lack the versatility of GPUs. They’re not capable of handling a wide range of high-performance computing tasks. But then, most people don’t need a Thought Engine to calculate the optimal angle for stacking pancakes.1

In the fourth quarter, Broadcom generated record revenue – a rather substantial $18 billion, accelerating 28% year over year. Adjusted earnings per share jumped 37% to $1.95. The company made it abundantly clear that AI was the driving force behind these results, with AI semiconductor revenue accelerating 74% year over year to $6.5 billion. A perfectly respectable performance, even by the standards of a particularly ambitious gnome.

Management anticipates this AI-driven growth will continue. Broadcom’s first-quarter forecast calls for AI semiconductor growth exceeding 100% to $8.2 billion, fueled by demand for AI accelerators and Ethernet AI switches. In other words, they’re selling a lot of digital plumbing.2

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Don’t Take My Word For It

Ark Invest founder and CEO Cathie Wood, a woman who clearly understands the value of peering into the future (or at least having a very good algorithm), recently released the firm’s Big Ideas 2026 report. This document, a veritable grimoire of disruptive technologies, lays out the case for Soulstones:

Our research suggests that ASICs designed by companies like Broadcom … will continue to take share as AI labs and hyperscalers search for cost-effective compute.

In short, Wood predicts that Broadcom will continue to ‘chip’ away at Nvidia’s share of the AI data center market. Furthermore, the report states that AI infrastructure investment (read: data centers) could exceed $1.4 trillion by 2030. A sum that would make even the most avaricious dragon blush, and illustrates the sheer magnitude of the opportunity.

Perhaps more intriguing is the company’s valuation. Broadcom stock is currently trading at 31 times forward earnings, cheaper than Nvidia’s multiple of 39. While still a premium, these AI chipmakers are leaders in a space expected to drive growth for years to come. That’s why I own both. Diversification, you see, is a sensible strategy, even if it lacks the dramatic flair of betting everything on a single, shimmering unicorn.

That said, I predict that Broadcom stock will outpace Nvidia in 2026. It’s not a matter of one company being ‘better’ than the other; it’s a matter of recognizing the shifting sands of demand. The age of brute-force computation is giving way to an era of elegant efficiency. And, frankly, a little less heat.

  1. 1 The optimal pancake angle, for those curious, is approximately 47 degrees. Any deviation results in structural instability and a regrettable loss of syrup.
  2. 2 Digital plumbing is, of course, significantly more complex than its analogue counterpart. It involves a lot of silicon, a lot of electricity, and a surprising amount of existential angst.

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2026-01-25 11:13