Citi believes the AI supercycle will continue through 2026 but warns that the risk-reward balance is becoming less favorable. Volatility may increase as costs related to OpenAI emerge in the second half of 2026 and concerns grow over debt used to fund AI infrastructure.

Within the AI ecosystem, Citi remains bullish on Nvidia (NVDA.US), Broadcom (AVGO.US), and Micron Technology (MU.US). The bank sees the biggest upside surprise coming from the analog chip sector, expecting a recovery in 2026 due to low inventory, slow supply growth, and depressed margins, which should drive consensus estimate revisions.

Microchip Technology (MCHP.US) is Citi's top pick, given its significant underperformance in sales and margins from peak levels, leaving room for upward revisions. Other "Buy"-rated stocks include Broadcom, Micron, Texas Instruments (TXN.US), NXP Semiconductors (NXPI.US), and Analog Devices (ADI.US).

Citi favors Broadcom, citing upside potential from the adoption of Tensor Processing Units (TPUs). The company has confirmed Anthropic as Google’s (GOOGL.US) largest TPU customer, expected to contribute $21 billion in revenue by 2026.

Regarding Micron, analysts stated in a December 22 report, "We continue to see further upside, with DRAM price increases in every quarter of 2026 driving additional consensus estimate revisions."

On earnings, Citi forecasts Microchip Technology’s EPS to grow over 4x—from $0.24 in Q3 2025 to an estimated $1.33 by Q4 2027. Texas Instruments’ EPS is projected to rise 77%, from $1.20 in Q1 2026 to $2.12 by Q3 2027.

Citi also prefers Synopsys (SNPS.US) over Cadence (CDNS.US), citing Synopsys’ stronger potential for operating margin expansion. The firm expects margins to benefit from cost-cutting measures, a higher software revenue mix, and a rebound in its IP business.