The Underestimated AI Networking Revolution: Why Broadcom and Coherent Are 2026 Must-Owns

The artificial intelligence (AI) infrastructure boom is reshaping global technology markets, with networking and optical components emerging as critical enablers of next-generation computing. While much of the spotlight has focused on AI chipmakers and cloud providers, two underappreciated beneficiaries-Broadcom (AVGO) and Coherent (COHR)-are quietly dominating the infrastructure layer that powers AI's exponential growth. For investors seeking undervalued exposure to this revolution, these companies offer compelling long-term opportunities, driven by their technical leadership, strategic partnerships, and accelerating demand from hyperscalers and enterprises.

Broadcom: The Unseen Backbone of AI Networking

Broadcom's dominance in AI infrastructure is rooted in its dual expertise in high-speed networking and custom silicon. The company's AI semiconductor revenue is projected to surge 150% in fiscal 2026, reaching nearly $50 billion, fueled by demand for its Tomahawk 6 switches, CPO (Co-Packaged Optics) technology, and XPUs tailored for hyperscale clients like Google, Meta, and Anthropic according to analysis. In Q3 2025, Broadcom reported $15.95 billion in total revenue, with its Semiconductor Solutions segment contributing $9.17 billion-a testament to its growing influence in AI-driven data centers.

What sets Broadcom apart is its ability to deliver end-to-end solutions. The integration of VMware has enabled the company to offer a full-stack "Private AI" platform, combining compute, networking, and software to address enterprise workloads. Meanwhile, its custom AI accelerators now account for 65% of AI revenue, supported by a $73 billion order backlog, including $53 billion in XPUs, to be fulfilled over the next 18 months. A recent $1 billion order from a fifth customer and a non-binding agreement with OpenAI to build 10 gigawatts of AI capacity by 2029 further underscore its strategic positioning.

Despite a price-to-earnings multiple of 75-well above the S&P 500 average-analysts argue that Broadcom's growth justifies the premium. With AI semiconductor revenue expected to nearly double in Q1 2026, some predict the stock could reach a $2 trillion market cap by year-end. For investors willing to stomach short-term volatility, Broadcom's momentum in AI networking and system-level deliveries positions it as a cornerstone of the 2026 AI landscape.

Coherent: The Optical Enabler of AI's Next Frontier

While Broadcom focuses on silicon and software, Coherent is solving the "last mile" problem in AI infrastructure: high-speed optical connectivity. The company's Datacenter & Communications segment, which accounts for 69% of revenue, has surged 26% year-over-year in Q1 FY26, driven by demand for 1.6-terabit transceivers and silicon carbide platforms. With AI clusters requiring exascale bandwidth, Coherent's optical components are becoming indispensable for hyperscalers and cloud providers.

Financial performance has been equally impressive. In Q1 FY26, Coherent reported $1.58 billion in revenue-a 17% year-over-year increase-and non-GAAP earnings per share of $1.16, up 73%. Management forecasts $1.56–$1.70 billion in Q2 revenue, reflecting confidence in sustained demand. However, valuation concerns linger. A DCF model estimates Coherent's intrinsic value at $151.75 per share, suggesting the stock is currently 15.5% overvalued. Its Price to Sales ratio of 4.56x also exceeds the electronic industry average of 2.52x according to analysis.

Critics argue that Coherent's growth is already priced in, but this overlooks its long-term potential. The company is expanding production capacity to meet surging demand and has improved gross margins to 38.7% in Q1 FY26, with management targeting 40%+ in the long term. Analysts from Needham, Barclays, and Stifel have raised price targets to $120–$190, reflecting optimism about Coherent's ability to monetize AI infrastructure demand. For investors with a multi-year horizon, the company's technical moat and strategic alignment with AI's optical needs make it a compelling, if volatile, play.

Valuation Realities and Strategic Risks

Both companies face valuation scrutiny. Broadcom's 75 P/E ratio and Coherent's elevated Price to Sales metrics suggest skepticism about sustaining current growth rates. However, these metrics fail to capture the compounding effects of AI infrastructure demand. For example, Broadcom's $73 billion order backlog ensures revenue visibility for 18 months, while Coherent's 26% year-over-year growth in its core AI segment indicates durable demand.

Risks remain, particularly for Coherent, which faces macroeconomic headwinds in its industrial segment and sector volatility. Broadcom, meanwhile, must navigate competition from rivals like Intel and NVIDIA in the AI accelerator space. Yet, both companies' first-mover advantages in networking and optics-combined with their ability to scale with hyperscalers-position them to outperform peers.

Conclusion: Must-Owns for the AI Era

The AI revolution is not just about chips and algorithms-it's about the infrastructure that connects them. Broadcom and Coherent are solving the most critical bottlenecks in AI scaling, from high-speed networking to optical interconnects. While their valuations may appear stretched, the sheer magnitude of AI infrastructure demand justifies their premium pricing. For investors seeking exposure to the next phase of the AI boom, these companies represent must-own positions in 2026.