Semiconductor company Broadcom (AVGO +1.18%) has enjoyed an incredible year, rising some 50% so far, even after a large pullback due to poorly received fourth-quarter results. This has investors searching for the next Broadcom, as who wouldn't want those incredible one-year returns?
The secret to Broadcom's rise is tied to the custom artificial intelligence (AI) chips it's developing. These compete directly against Nvidia's (NVDA +1.91%) graphics processing units (GPUs), which are incredibly costly due to their impressive performance and flexibility. Broadcom's custom AI chips can outperform Nvidia's GPUs at a lower price point when the workload is set up properly, giving them a huge advantage at the cost of flexibility.
Designing custom AI computing units is going to become more popular, as Nvidia's chips are far too expensive not to explore this avenue. While many companies are choosing to partner with Broadcom, others are opting to do it themselves. One of these companies is hiding in plain sight, and its recent release is incredibly promising.
Amazon (AMZN +2.46%) has dived into designing its own AI chip, and the results have been phenomenal. This innovation could provide Amazon with the growth it needs to be a monster stock pick over the next few years, making it an excellent investment today.
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Amazon's new device provides incredible performance
Amazon's new computing chip is known as Trainium3. It is built on cutting-edge 3nm (nanometer) chip architecture and delivers impressive performance at a lower price point. Compared to previous generation Trainum2 servers, they offer 4 times the computing performance while improving energy efficiency by 4 times as well. That helps reduce operating costs and run time, which allowed several generative AI clients to reduce training and inference costs by up to 50%, including Anthropic.
Those are huge boosts for Amazon, and it could attract new clients to its servers. One of those is OpenAI, which is reportedly considering using Amazon's Trainium3 chips in exchange for a $10 billion investment. This could be the first of many companies flocking to Amazon's training servers, as cost is starting to become a large bottleneck in the artificial intelligence investing realm.
NASDAQ: AMZN
Key Data Points
Investors want to see real innovation in exchange for their dollars, and companies may need to stretch their funding to achieve better results. Switching from GPUs to alternative computing units like Amazon's is one way to do that, and it could grow in popularity in 2026.
Depending on how popular this product is, Amazon could become the next Broadcom. We'll see success tied to Amazon's cloud computing segment, Amazon Web Services (AWS), if it has any boost in 2026. Fortunately for Amazon and its investors, it's already looking up.
AWS is critical to Amazon's success
Despite AWS accounting for only 18% of Amazon's total revenue, it represents 66% of its operating profits. That's because AWS' margins are far better than the base e-commerce business, so as AWS goes, so will Amazon.
In Q3, AWS posted its best growth rate in multiple years, rising at a 20% pace. This indicates that more workloads are coming online at AWS, which is an excellent sign for 2026. If Amazon can continue this momentum in 2026, combined with the rise of Trainium3 workloads, Amazon's stock could dramatically rise in 2026.
While I doubt it can duplicate Broadcom's 50% rise this year, I think Amazon is prepped to be a market-beating stock, especially after its underperformance this year. Amazon is well-positioned to take advantage of the growing AI workload, and with the rest of its business also producing strong results (advertising in particular), I think Amazon has what it takes to be a top stock pick in 2026.
