Citi Research sees the AI supercycle extending into 2026 but warns that the risk-reward balance is becoming less favorable, with greater volatility likely as OpenAI-related costs emerge in the second half of 2026 and worries grow over the debt used to finance the AI buildout.
The brokerage continues to favor NVIDIA (NVDA), Broadcom (AVGO), and Micron Technology (MU) in the AI ecosystem and sees the biggest positive surprise coming from the analog sector and expects an upturn in 2026 with consensus estimates moving higher given low inventory, low supply growth, and depressed margins.
Citi names Microchip Technology (MCHP) as its top pick, expecting the greatest upside to estimates due to its sales and margins having declined the most from peak levels. Other Buy-rated stocks include Broadcom (AVGO), Micron Technology (MU), Texas Instruments (TXN), NXP Semiconductors (NXPI), and Analog Devices (ADI).
“We like AVGO and see upside due to proliferation of TPUs,” the brokerage said, as AVGO confirmed Anthropic as Google’s (GOOG) largest TPU customer with $21 billion in revenue in 2026.
“We continue to believe more upside is coming at Micron, with DRAM pricing increasing every quarter in C26, driving further upside to consensus estimates,” analysts said in a Dec. 22 note.
In terms of earnings, Citi expects MCHP EPS to expand by more than 4X from $0.24 in 3Q25 to $1.33 by 4Q27E and projects TXN EPS to grow by 77% from $1.20 in 1Q26E to $2.12 in 3Q27E.
Citi also favors Synopsys (SNPS) over Cadence Design Systems (CDNS), citing stronger potential for operating margin expansion at Synopsys. The firm expects margins to benefit from cost-cutting initiatives, a higher software mix, and a rebound in the IP business.