Broadcom: A Most Interesting Case (2026)

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One does occasionally stumble upon a company that, while perfectly respectable, possesses a certain… momentum. Broadcom (AVGO +0.19%), I believe, falls into that category. Not terribly exciting, mind you, but undeniably… flourishing in this rather frantic race for artificial intelligence dominance. One might even say it’s having a good run. A positively good run.

Let’s consider, shall we, a few observations regarding its prospects for 2026. One doesn’t predict, of course – that’s for the more excitable sort – but one can certainly assess.

A Revenue Surge, Naturally

Among the larger tech entities, Broadcom appears poised for a rather substantial increase in revenue. Not entirely unexpected, given the current climate. It’s a combination, you see, of its networking portfolio – perfectly serviceable, if not particularly inspired – and a rather clever foray into AI chip production. The key, as always, is anticipating where the money will flow.

The real driver, however, will be those tensor processing units – TPUs, as they’re calling them. Apparently, Alphabet (GOOGL 0.20%) (GOOG 0.13%) commissioned Broadcom to create these little marvels, and are now proposing to spend a truly staggering sum – between $175 and $185 billion, if one’s calculations are correct – building out their data center capacity. A bit vulgar, perhaps, but undeniably effective. And now, rather cleverly, Alphabet is offering these TPUs to customers through Google Cloud, while Anthropic has placed an order for $21 billion worth. One begins to suspect a pattern.

Even before this rather ostentatious display of capital expenditure, Citigroup analysts were predicting a doubling of Broadcom’s AI revenue to around $40 billion in 2026. Given Alphabet’s profligacy, that figure may prove to be… conservative. Considering Broadcom’s total revenue of just shy of $64 billion in fiscal 2025, the potential for growth is, shall we say, rather considerable. Explosive, even. Though one dislikes the word.

Margins: A Delicate Matter

While a revenue surge is, of course, delightful, one must always consider the matter of margins. Broadcom’s software division, courtesy of VMware, enjoys remarkably high margins – often exceeding 80%. The networking portfolio is also quite respectable, hovering around 70%. Perfectly acceptable, really.

However, ASICs – application-specific integrated circuits – tend to have lower margins, typically in the mid-50s. The reason, as always, is the cost of components. One is forced to purchase from others, you see, and those others, naturally, insist on being compensated. And the margins for Anthropic? Likely even slimmer, with a portion inevitably diverted to Alphabet. It’s a rather tiresome cycle, isn’t it?

That said, gross profit growth remains the crucial metric, and on that front, these sales are undeniably positive. One mustn’t be overly fussy, after all.

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The Stock Itself: A Modest Recommendation

Despite a sluggish start to the year – a minor inconvenience, really – Broadcom’s stock is well-positioned to outperform. It possesses one of the most significant growth opportunities in the AI infrastructure space, and that opportunity, one suspects, will only expand.

Its success with TPUs has attracted the attention of other companies – OpenAI, for instance – who have also commissioned it to create custom AI chips. A perfectly logical development, of course. With AI ASICs poised to capture market share from graphics processing units – GPUs, as they’re calling them – Broadcom is, undeniably, a rather compelling growth story. And in a market obsessed with growth – as this one so demonstrably is – that, my dear, is a recipe for long-term success. Or, at the very least, a reasonably comfortable return.

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2026-02-20 12:03