This quietly dominant stock - plus Nvidia and Broadcom - are Mizuho's top chip picks

By Britney Nguyen

Lumentum's stock has quadrupled over the past year, but the optical component company plays into key AI themes that could fuel further gains

Nvidia CEO Jensen Huang at the Consumer Electronics Show on Jan. 6, 2026.

When looking for the best ways to play the ongoing semiconductor boom this year, investors might not want to overthink things.

When Mizuho analyst Vijay Rakesh put out his list of top chip picks for the year, two familiar names made the cut: Nvidia (NVDA) and custom-chip rival Broadcom (AVGO). Both can extend their dominance into 2026 and deliver further gains for investors, he noted.

A third pick is a stock that has essentially quadrupled in the past year, dramatically outperforming Nvidia and Broadcom shares, but without the same name recognition. That's Lumentum Holdings (LITE), which makes optical and photonics technologies.

Rakesh sees more upside to Lumentum shares as Google Cloud Platform and Amazon (AMZN) Web Services ramp up optical technology deployments. Lumentum should also benefit from the ramp-up of optical circuit switching and copackaged optics at Nvidia, he said.

In all, there's "room for substantial growth" as AI data centers move from copper to optical in pursuit of improved connectivity, he said.

As for Nvidia and Broadcom, Rakesh said the companies can keep with the rising tide of hyperscaler capital expenditures, which could grow 32%, to $540 billion, this year. Other catalysts include increased AI adoption in enterprise settings, as well as improved AI models.

Wall Street will be looking at new AI models for proof that AI scaling laws, which describe how AI systems improve with more training data and other resources, are still intact. OpenAI's next AI model release could come in the first quarter, and it's expected to be among the first trained using Nvidia's Blackwell AI platform.

See more: Here's what Nvidia investors can look forward to in 2026

Both chip companies seem to be improving the performance-per-watt of their platforms by more than 50% from one generation to the next, according to Rakesh. And the total cost of ownership is coming down as well, which could spur greater adoption of AI.

Bernstein analyst Stacy Rasgon said in a Friday note that Google expects to ship "many many millions" of its latest tensor processing unit, Ironwood, this year, citing a recent meeting with Broadcom's management. Broadcom and Google have codesigned multiple generations of the TPU for more than a decade.

That said, there are still concerns about the financial profile of key customer OpenAI. The company and its partners are expected to invest $50 billion for each gigawatt of AI capacity in the ChatGPT creator's multiyear data-center build-out, he noted. Both Nvidia and Broadcom have agreements to roll out multi-gigawatt chip systems with the AI startup starting in the second half of this year.

The first half of the year could be stronger than the second, according to Rakesh, who warned of potential "higher volatility" around new product launches and ramps expected later in 2026. Those include Nvidia's Vera Rubin AI platform and Advanced Micro Devices' (AMD) Instinct MI400 series of AI accelerators. U.S. midterm elections in November and rate-cut uncertainty could also impact the technology trade.

Read: This could be a better - and safer - way into the AI trade in 2026

-Britney Nguyen

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01-09-26 1140ET