Broadcom Earnings: AI Is Driving Growth and VMware Looks Closer to Completion

We raise our fair value estimate for wide-moat Broadcom to $815 per share, from $790, as we raise our probability of the VMware acquisition closing to 75%, from 50% previously. Our greatest concerns to closing the deal were the U.K. and U.S. jurisdictions, and Broadcom has gained approval in the U.K. and faces no legal challenges in the U.S. We see China as the final regulatory hurdle. Our standalone fair value estimate for Broadcom is unchanged at $740 per share after fiscal third-quarter results met our expectations. The recent surge in artificial intelligence spending at cloud hyperscalers is generating terrific growth for Broadcom’s networking chips, and overshadowing softness in some other semiconductor markets. We remain impressed with Broadcom’s networking portfolio and ability to execute with its customers but continue to see its current valuation as outpacing its fundamentals. We advise investors to wait for a pullback.