Broadcom (AVGO) stock is primed for an upward move now that the chipmaker has finalized its acquisition of VMware, according to Wall Street analysts. However, AVGO stock experienced a dip on Friday.
San Jose, Calif.-based Broadcom successfully closed its acquisition of VMware on Wednesday, following conditional approval from China’s State Administration for Market Regulation. A deal that was initially announced in May 2022 faced delays due to a lengthy review by Chinese regulators.
Broadcom is a diversified technology company specializing in semiconductor and infrastructure software solutions. Meanwhile, Palo Alto, Calif.-based VMware offers cloud computing management and networking software.
KeyBanc Capital Markets analyst John Vinh has reaffirmed his overweight rating on AVGO stock and has raised the price target to 1,200 from 1,000.
Despite AVGO stock declining by 0.2% to 970.51 in morning trades on the stock market, Vinh mentioned that he anticipates the acquisition to contribute immediately to Broadcom’s gross profit margin and earnings per share.
AVGO Stock Showcases Technological Leadership
On October 13, AVGO stock reached a buy point of 923.67 out of a flat base, as indicated by IBD MarketSmith charts. However, it experienced a pullback, ending the session down 2.5% at 883.18. Subsequently, Broadcom stock rebounded, achieving a record high of 999.87 on Monday. Moreover, AVGO stock is listed on the IBD Tech Leaders list.
VMware Acquisition Valued at $83 Billion
The VMware acquisition is anticipated to boost Broadcom’s software sales while reducing its exposure to the cyclical semiconductor market. This will lead to an increase in Broadcom’s software sales to about 40% of its total revenue in the first year post-close, according to Evercore ISI analyst Matthew Prisco. Prisco has given AVGO stock an outperform rating with a price target of 1,050.
When Broadcom announced its acquisition of VMware 18 months ago, the cash-and-stock deal was valued at $61 billion, along with the assumption of VMware’s debt of approximately $8 billion. However, with the appreciation of Broadcom’s stock since then, the closing value of the deal stood at about $83 billion, according to a report by Barron’s.
A news release by Broadcom revealed Chief Executive Hock Tan’s statement calling the acquisition of VMware “another important step forward in building the world’s leading infrastructure technology company.” The next potential catalyst for AVGO stock could be Broadcom’s fiscal fourth-quarter earnings report on December 7.
Follow Patrick Seitz on X, formerly Twitter, at @IBD_PSeitz for more stories on consumer technology, software, and semiconductor stocks.
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