Broadcom Stock Has Jumped Just 7% in 2026. This Move by Meta Platforms Could Supercharge the Stock in the Second Half
Key Points
Meta Platforms and Broadcom have a long-term agreement in place to design custom AI data center processors.
This is good news for Broadcom investors, as Meta is poised to significantly ramp up the deployment of its custom AI processors.
Broadcom's earnings growth potential indicates that the stock could double from current levels.
With gains of just 7% so far this year, Broadcom (NASDAQ: AVGO) stock has been underperforming the broader semiconductor sector in 2026. The PHLX Semiconductor Sector, for comparison, has jumped 58% this year.
The stock's expensive valuation explains Broadcom's underperformance. After all, it is trading at 62 times trailing earnings. Of course, Broadcom delivered an impressive 54% year-over-year increase in its earnings per share in the second quarter of fiscal 2026 (which ended May 3). However, there are companies with much faster earnings growth trading at lower multiples.
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So, Broadcom needs to deliver significant acceleration in earnings growth to give its stock a shot in the arm. The good news for investors is that the next big catalyst for Broadcom stock could arrive soon, courtesy of Meta Platforms (NASDAQ: META).
Image source: The Motley Fool.
Meta Platforms is poised to go big on in-house artificial intelligence (AI) chips
According to a Reuters report, Meta Platforms will reportedly start manufacturing an in-house AI chip, codenamed Iris, from September this year. An internal memo viewed by Reuters states that Meta aims to boost its AI data center capacity to 14 gigawatts (GW) by next year, with its Iris chips playing a central role in that expansion.
What's more, Iris is reportedly set to be the first generation of the tech giant's in-house Meta Training and Inference Accelerators (MTIA), which the company relies on to power AI functions on Facebook and Instagram. Reuters adds that the testing of the chip has been completed successfully. This is great news for Broadcom, which is partnering with Meta on the MTIA program.
In April, Broadcom announced a "multi-year, multi-generation strategic partnership" with Meta to help the Magnificent Seven company design custom silicon to power its AI data centers. Broadcom was poised to deploy 1 gigawatt (GW) of computing capacity in the first phase of the partnership. However, it now appears that Broadcom could end up rolling out significantly more AI computing capacity with Meta.
It is worth noting that Meta Platforms has increased its 2026 capital expenditure guidance to a range of $125 billion to $145 billion from the prior range of $115 billion to $135 billion. Broadcom could benefit from this aggressive capital spending to support the rollout of Meta's AI data centers.
Broadcom can post stronger-than-expected growth in the second half
When Broadcom released its fiscal Q2 results last month, it reported a 48% year-over-year increase in revenue to $22.2 billion. The company's fiscal Q3 revenue guidance of $29.4 billion points to a significantly stronger year-over-year increase of 84%. Even better, consensus estimates project a 94% year-over-year revenue jump in fiscal Q4.
However, don't be surprised to see Broadcom clocking bigger gains as key customers like Meta accelerate their AI infrastructure rollout. Moreover, Broadcom trades at just 20 times forward earnings, and its bottom-line growth is poised to remain solid in the future following an estimated jump of 70% this fiscal year to $11.62 per share.
Data by YCharts
Assuming Broadcom trades at even 30 times earnings at the end of fiscal 2028 and its earnings per share increase to $25.85, as shown in the chart above, its stock price will jump to $775. That's a potential jump of 107% from current levels, which is why investors should consider buying this AI stock before it steps on the gas in the second half of 2026.
Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Broadcom and Meta Platforms. The Motley Fool has a disclosure policy.