By Adam Clark
Big U.S. tech companies will ratchet up spending on artificial intelligence by nearly one-third this year, positioning chip makers for more gains after an astonishingly strong run in 2025, analysts at Mizuho say.
Shares of Nvidia and Broadcom will both be strong again this year, but investors who worry about which will come out on top could back optical-networking company Lumentum Holdings, analysts led by Vijay Rakesh said in a research note Friday.
The three companies are the team's top picks in the semiconductor sector for this year, based on an estimate that large U.S. technology companies will increase their AI capex by 32% to $540 billion.
Chip makers Nvidia and Broadcom are obvious beneficiaries as providers of AI processors. Rakesh raised his target price on Nvidia to $275 from $245, while he lifted his call on Broadcom to $480 from $450. That implies healthy gains from Nvidia's current level of around $185 and Broadcom's price of around $332.
Both stocks are rated at Outperform.
Nvidia and Broadcom are often seen as rivals. As Barron's has written, Broadcom's work with Alphabet's Google, helping design the search company's Tensor Processing Units, has produced the biggest threat so far to Nvidia's dominance in the AI chip sector. The potential sale of TPUs to more external customers has been a big part of the reason Nvidia's shares have largely stalled over the past three months.
However, Rakesh sees space for both to thrive. He backs Nvidia to deliver 51% revenue growth for its fiscal 2027 and Broadcom revenue to be up 53% in 2026.
"We expect the AI trade to remain intact in 2026, and see AI accelerators unit shipments growing 36% after 2025 grew 34% y/y [year-over-year] as demand accelerates with Hyperscalers, Neoclouds, Enterprise/Sovereign all continuing to invest in generative AI," Rakesh wrote.
Those looking for AI plays that would win from progress by either Nvidia or Broadcom can choose Lumentum. The company designs and manufactures optical and photonic products, including lasers. Demand for its components in data centers has sent revenue soaring in recent quarters.
Lumentum stock has more than quadrupled over the past 12 months but the Mizuho team still sees more to come. Rakesh raised his target price on the stock to $455 from $325, with an Outperform rating. Lumentum shares currently stand at around $350.
"We see Lumentum remaining well positioned as AI data centers transition from Copper to Optical [networking]," Rakesh wrote.
Lumentum is in the happy position that it can benefit from all parties. Nvidia is adopting co-packaged optics -- integrating optical engines directly alongside its chips -- for its next-generation SpectrumX and QuantumX AI switches. Lumentum is the sole supplier of lasers for those switches.
Meanwhile, Google is adopting Lumentum's optical circuit switches for its own data-center hardware. If Google and Broadcom's TPUs take market share, then Lumentum also stands to gain.
"We believe Lumentum justifies a 20% higher multiple with potentially accelerated Google deployments of TPU in 2026E (up >35% y/y) and TPUs expanding to external customers (Anthropic, etc.)," wrote Rakesh.
Write to Adam Clark at adam.clark@barrons.com
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(END) Dow Jones Newswires
January 09, 2026 09:29 ET (14:29 GMT)
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