Broadcom: Is Rumored VMware Acquisition a Good Move? Analyst Weighs In

The rumor mill has spun into overdrive with reports Broadcom (AVGO) is in talks to buy VMware in a deal which could be worth up to $50 billion.

VMware is a cloud software specialist and a big player in its field with a market cap north of $45 billion. Large corporations use its services to manage data centers and take care of private and public cloud networks.

The acquisition could further help turn the semi-conductor giant into a more variedtech company. Such a move follows a pattern and is hardly unexpected, according to Deutsche Bank’s Ross Seymore.

“The news doesn’t come as a total surprise to us as AVGO has long been an active acquiror, with its recent strategic focus on expanding its enterprise software business,” explained the 5-star analyst.

Broadcom acquired enterprise software and services provider CA Technologies in a deal worth $18.9 billion in 2018, and that was followed by the $10.7 billion acquisition of cyber security group Symantec in 2019.

So, the deal appears in-line with the company’s recent software-centric acquisition strategy and Seymore thinks it would balance the post-deal revenue equally between Semi/Software.

And just like the strategy used in prior software acquisitions, it would likely lead to Broadcom improving VMW’s focus and cost structure so to “address select large accounts.”

Seymore also believes that from a software angle, given VMware has hard a hard time with “multiple transitions and maintaining leadership as a de facto enterprise control plane,” this would be considered a good move for VMware shareholders.

As for other companies that might be interested in VMware, Seymore thinks there is a “low probability” other parties will enter the fray, although hyperscalers such as Amazon and Google would be likely buyers, and due to VMware’s 5,000+ patent portfolio, possibly Microsoft.

“If talks are successful,” the analyst summed up, “we believe that such an acquisition would strengthen AVGO’s position in the enterprise/infrastructure software market.”

All in all, Seymore reiterated a Buy rating for AVGO shares, backed by a $700 price target. Should the figure be met, investors are looking at one-year returns of ~34%. (To watch Seymore’s track record, click here)

Broadcom has a full house of Buys only – 12, in total – underpinning its Strong Buy consensus rating. The $707.92 average target is only slightly above Seymore’s target and set to generate gains of 35% over the one-year timeframe. (See Broadcom stock forecast on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.