Broadcom Has Beaten the Market for 6 Straight Years. Can It Continue to Outperform in 2026?

It was a year ago that tech company Broadcom (NASDAQ: AVGO) joined the trillion-dollar club. And what's remarkable is that even as it crossed that valuation, it has continued to soar this year. As of Dec. 15, it has rallied 47% since January, which is far higher than the S&P 500's gains of just under 16%.

Broadcom has routinely outperformed the index, and it's on track to do so for a sixth consecutive year in 2025. The last time it fell short of the S&P 500's returns was in 2019, when the index gained 29% but Broadcom's stock rose by just 24%. It was a close one, but by and large, investors have done exceptionally well with this tech company.

Is Broadcom likely to extend its market-beating streak to seven years in 2026?

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Why Broadcom could beat the market again in 2026

Broadcom's business has benefited from robust demand from hyperscalers for its custom chips. On Dec. 11, the company released its year-end results for fiscal 2025 (it ended on Nov. 2), with sales totaling $63.9 billion, representing a year-over-year increase of 24%. What was far more impressive was its bottom line, which totaled $23.1 billion and nearly quadrupled the $5.9 billion that it reported a year ago.

The big catalyst was, unsurprisingly, artificial intelligence (AI). The company says that during its most recent quarter, AI semiconductor revenue grew by 74%. And CEO Hock Tan says that the momentum remains strong in the first quarter, with AI semiconductor revenue on track to double on a year-over-year basis.

If this proves to be a sign of things to come for Broadcom, it won't be hard to envision a scenario where the stock outperforms the S&P 500 yet again. The company is involved with the leading tech and AI companies in the world, and as long as demand is strong, the stock could be poised for more significant gains in 2026.

Why Broadcom's stock might struggle

The bearish case for Broadcom centers around its valuation and the possibility of a slowdown in AI spending. There are no indications that will happen, but it's something that investors are growing cognizant of, especially given how high stock prices have risen.

Broadcom's stock currently trades at a price-to-earnings multiple of 75, which is close to three times the 26 times earnings the average stock on the S&P 500 trades at. A premium may be justifiable given the strong AI growth, but Broadcom's overall growth rate is still less than 30%; it may be hard to justify such an astronomical valuation for that level of growth.

Ultimately, Broadcom's stock performance next year will likely come down to two factors: the appetite from retail investors to continue paying high premiums for AI stocks, and whether AI spending will remain strong. If both conditions are favorable for Broadcom, I'd expect it to outperform the index; otherwise, a sell-off could be coming.

Is Broadcom a good AI stock to buy right now?

It may be tempting to assume that since Broadcom has done well for six straight years that it's likely going to continue that pattern in 2026. But the past doesn't predict the future, and the danger for investors is in assuming that the stock will rise again simply because it has done so in previous years.

And there are signs that investor sentiment is souring on AI stocks. On Monday, Broadcom's stock fell to below $340 -- down from over $406, which is where it was before it released earnings last week. In a matter of days, it has lost over 16% in value. It's an alarming sign that investors may not be as excited with the stock as they have been in the past, even though the company beat expectations on both the top and bottom lines in its most recent quarter.

As hot as Broadcom's stock has been, I think more of a cooldown is coming. It looks overdue for a decline, and 2026 could very well be the year when the S&P 500 generates better returns again.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.