Forget Nvidia And Broadcom, These 5 Small-Cap Chip Stocks Could Rally Big This Year

For investors weary of chasing incremental upside in already high-flying chip giants like NVIDIA Corp. (NASDAQ:NVDA), Broadcom Inc. (NASDAQ:AVGO) and Advanced Micro Devices Inc. (NASDAQ:AMD), a quieter corner of the semiconductor market may offer a more attractive setup in 2026.

• Credo Technology Group stock is trading in a tight range. What’s next for CRDO stock?

A select group of small- and mid-cap chip stocks is emerging as a potential next leg of outperformance, fueled by continued AI infrastructure spending, rising chip complexity, and strengthening aerospace and defense demand.

In a note published Thursday, Bank of America semiconductor analyst Vivek Arya pointed to five small- and mid-cap semiconductor names that are well positioned to benefit from a market rotation toward under-owned stocks with above-average growth potential.

CRDO: The AI Connectivity Leader

Credo Technology Group Holding Ltd (NASDAQ:CRDO) stands out as the fastest-growing name in the group. The company leads the market in active electrical cables — key components for connecting AI servers — with roughly 75% market share in 2025.

According to Bank of America, the active electrical cable market is set to expand to more than $7 billion by 2030 from about $1.2 billion this year.

Credo currently dominates that niche and could generate $4 billion to $5 billion in annual revenue long term.

At that scale, Bank of America sees more than $10 in earnings power and about 44% upside to its $200 price objective.

“We believe consensus likely underappreciates the durability of copper in data centers with its lower power and proven operational benefits,” Arya said.

Shares of Credo Technology rallied 114% last year and by 245% in 2024.

MKSI: Riding Wafer Equipment

MKS Inc. (NASDAQ:MKSI) is set to benefit from a multiyear wafer fabrication equipment (WFE) upcycle and increasing demand for complex semiconductor packaging.

The company raised its fourth-quarter revenue guidance to $1.03 billion and boosted EBITDA expectations by 6% to $248 million.

MKSI’s exposure to advanced packaging — especially AI-driven printed circuit board complexity — gives it additional upside, supported by strong bookings and recurring high-margin chemistry sales.

Bank of America increased its price target from $215 to $255, citing an 8% revenue and 15% EPS growth forecast through 2027.

AEIS: Underappreciated AI Power Play

Advanced Energy Industries Inc. (NASDAQ:AEIS) offers exposure to both AI-driven data center power demand and the rebound in semiconductor equipment spending.

Bank of America sees 11% revenue and 19% EPS growth through 2027, raising its price objective from $260 to $300.

With management guiding for 25%–30% data center growth in 2026 and the broader market expecting 35% cloud capex growth, AEIS’ projections may prove conservative.

Gross margins are expanding toward 40%, and upside could come from new customer wins and an industrial rebound.

TER: Testing The Limits Of AI Chip Complexity

Teradyne Inc. (NASDAQ:TER) is positioned to benefit as testing requirements for AI chips outpace the growth of chip shipments, according to Arya.

From high-bandwidth memory (HBM) to system-on-chip (SoC) designs, rising complexity is driving demand for more intensive semiconductor testing.

Arya expects 20% revenue growth and 39% EPS growth through 2027 and sees 12% upside from his raised $260 price objective.

“Robotics and systems-level test upside could be underappreciated,” Arya said.

The company is also set to benefit from Amazon's warehouse robotics upgrades, where Teradyne has a growing presence.

MTSI: Dual Exposure To Optics and Defense

According to Bank of America, MACOM Technology Solutions Holdings Inc. (NASDAQ:MTSI) offers “diverse connectivity portfolio levered to defense/aerospace tailwinds.”

The company combines long-term data center growth with strong aerospace and defense momentum.

Its data center segment grew 48% in 2025, and new wins in 200G photodetectors make MTSI a key player in the upcoming 1.6T transition.

Arya sees 15% revenue and 22% EPS growth through 2027, with 15% upside to his $260 price objective.

Defense contracts and satellite communications programs — especially following the FCC's green light for 7,500 new Starlink satellites — could further drive growth.

“MTSI sees continued strength and visibility with defense exposure becoming an attractive growth lever via share gains in microwave and optical RF and durable budget/program expansions,” Arya said.

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