This Super Semiconductor Stock Crushed Nvidia in 2025. Is It a Buy, Sell, or Hold in 2026?

Artificial intelligence (AI) development requires an astronomical amount of computing power, which can only be delivered through large, centralized data centers fitted with thousands of specialized chips. Nvidia (NASDAQ: NVDA) CEO Jensen Huang predicts annual spending on this infrastructure could hit $4 trillion by 2030, creating a massive financial opportunity for hardware suppliers.

Nvidia's graphics processing units (GPUs) are currently the best chips in the world for AI development, but Broadcom's (NASDAQ: AVGO) alternative chips -- called AI accelerators -- are increasing in popularity among tech giants because they can be fully customized.

Broadcom stock soared by 50% in 2025, comfortably beating Nvidia stock, which climbed by 36%. But is it too late for investors to board this train, or are the best gains yet to come?

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Serving some of the biggest AI companies

Nvidia's data center GPUs are a great plug-and-play solution for most AI companies, but as workloads become more complex, some developers see value in custom solutions that can be tailored to their specific needs. Alphabet, for instance, enlisted Broadcom's help to create its own AI accelerators called Tensor Processing Units (TPUs), which it used to develop its industry-leading Gemini family of AI models.

Alphabet recently started selling its latest Ironwood TPUs to other developers, which is a big win for Broadcom as the designer and manufacturer. Anthropic, which is the AI start-up behind the Claude chatbot, placed a $10 billion order for Ironwood TPUs earlier this year, followed by another order worth $11 billion more recently, which is scheduled for delivery in late 2026. Broadcom says Anthropic is just one of four customers so far.

But the chipmaker's AI opportunity doesn't stop there, because demand is also soaring for its data center networking equipment. Its Tomahawk Ethernet switches, for example, regulate how fast data travels between chips and devices, and they deliver industry-leading low latency and high throughput. The result is faster processing speeds with less data loss, which is a winning combination for AI developers.

Broadcom's AI revenue continues to soar

Broadcom generated $18 billion in total revenue during its fiscal 2025 fourth quarter (ended Nov. 2), beating management's forecast of $17.4 billion. It was a 28% increase compared to the year-ago period, and this was the second straight quarter in which that growth rate accelerated.

Broadcom's AI semiconductor business fueled the strong fourth-quarter result, with its revenue soaring by 74% to $6.5 billion. That growth rate also accelerated from 63% in the previous quarter, which highlights the significant momentum in the company's AI business.

But it gets better, because Broadcom's guidance for the first quarter of fiscal 2026 (which ends in early February) points to $8.2 billion in AI semiconductor revenue, representing further accelerated growth of 100%, led by surging demand for AI chips and networking equipment.

Turning to the bottom line, Broadcom produced a massive generally accepted accounting principles (GAAP) profit of $8.5 billion during the fourth quarter, a whopping 97% increase from the year-ago period. For fiscal 2025 overall, the company's GAAP profit almost quadrupled to $23.1 billion.

These results are a welcome payoff for patient investors who endured Broadcom's near-$100 billion merger and acquisition spree between 2019 and 2023, which led to substantial short-term losses, but ultimately turned the company into what it is today.

Is Broadcom stock a buy, sell, or hold in 2026?

Broadcom's operating performance is exceptional right now, but whether investors should buy this stock might depend entirely on their time horizon, because it isn't cheap.

Based on the company's fiscal 2025 earnings of $4.77 per share, its stock is trading at a price-to-earnings (P/E) ratio of 73.3, which is more than double the P/E ratio of the Nasdaq-100 technology index. It's also far more expensive than Nvidia stock, which trades at a P/E ratio of 46.6.

AVGO PE Ratio data by YCharts

Broadcom is also extremely expensive when we value the company based on its annual revenue. It's trading at a price-to-sales (P/S) ratio of 26.5 as I write this, nearly triple its 10-year average of 9.1.

AVGO PS Ratio data by YCharts

Broadcom's premium valuation isn't a surprise in light of the company's soaring growth. However, even if we assume its revenue will continue growing at the current pace, it might still be a couple of years before its stock looks attractively valued (unless it declines significantly in the meantime).

That means investors who are thinking about buying Broadcom stock -- or those who already own it -- should plan to hold it for at least a few years to maximize their chances of earning a positive return. This probably isn't the right stock for short-term investors who want to see big gains in 12 months or less.

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.