3 Predictions for Broadcom in 2026

One of the most intriguing stocks to watch this year is Broadcom (NASDAQ: AVGO). The company has some of the best growth prospects of any semiconductor stock in the artificial intelligence (AI) infrastructure space.

Let's look at three predictions I have for the stock in 2026.

1. Broadcom will see explosive revenue growth

Among megacap tech stocks, Broadcom looks poised to have some of the best revenue growth in 2026. This growth will be led by a combination of its networking portfolio and AI chip revenue.

Image source: Getty Images.

For 2026, its biggest driver will be tensor processing units (TPUs), the custom AI chips it helped Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) create. Alphabet has pledged to spend between $175 billion and $185 billion in capital expenditures (capex) this year, building out its data center capacity, and a lot of that spending will undoubtedly go toward its homegrown custom chips.

Meanwhile, Alphabet has also started to let some customers use its TPUs through Google Cloud, and Anthropic has already placed a $21 billion order with Broadcom for these chips to be delivered this year.

Even before Alphabet announced its huge capex number, analysts at Citigroup had projected that Broadcom's AI revenue would double in 2026 to around $40 billion. Given Alphabet's spending, that projection could even be low. With Broadcom generating just shy of $64 billion in total revenue in fiscal 2025, its revenue growth in 2026 is set to be explosive.

2. Broadcom's gross margins will shrink

While Broadcom is set to see explosive revenue growth, its gross margins will likely shrink. The company's software business, led by VMware, has very high gross margins, often above 80%. Meanwhile, its networking portfolio typically carries gross margins above 70%.

Gross margins for ASICs, however, are typically lower, usually in the mid-50% range. The reason for this is that the company has to buy high-priced third-party components that it then passes the costs along to its customers. Meanwhile, the gross margins for Anthropic could be even lower, with some of the margin going to Alphabet.

That said, the most important factor should be gross profit growth, and on that front, these sales are still very positive.

3. Broadcom's stock will outperform this year and beyond

Despite its sluggish start to the year, Broadcom's stock is well-positioned to outperform this year and beyond. It has one of the biggest growth opportunities in the AI infrastructure space, and that should just continue to grow.

Given its success with TPUs, other companies, including OpenAI, have also turned to it to help them make their own custom AI chips, expanding its opportunity further. With AI ASICs expected to take share away from graphics processing units (GPUs) in the coming years, Broadcom is one of the best growth stories in the AI infrastructure space. In a growth-obsessed market, that is the recipe for long-term outperformance.

Citigroup is an advertising partner of Motley Fool Money. Geoffrey Seiler has positions in Alphabet and Broadcom. The Motley Fool has positions in and recommends Alphabet. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.