Connect with us

Stocks

Why Is VMware (VMW) Stock Climbing 20% Today?

VMware (NYSE:VMW) stock is surging on reports that Broadcom (NASDAQ:AVGO) is trying to acquire the cloud computing company
A deal would help expand and grow Broadcom’s business beyond semiconductors
However, Broadcom has seen its acquisi…

  • VMware (NYSE:VMW) stock is surging on reports that Broadcom (NASDAQ:AVGO) is trying to acquire the cloud computing company
  • A deal would help expand and grow Broadcom’s business beyond semiconductors
  • However, Broadcom has seen its acquisitions fail in the past due to regulatory concerns

Source: Sundry Photography / Shutterstock.com

VMware (NYSE:VMW) stock is up 20% today on reports that Broadcom (NASDAQ:AVGO) is interested in acquiring the cloud computing company.

According to multiple reports, chipmaker Broadcom is in active talks with VMware to purchase it. While negotiations are progressing, no deal has bee announced. However, reports that the two companies are discussing a sale has been enough to push the share price of VMware sharply higher today.

Advertisement

Year to date, VMW stock is down about 1%. AVGO stock is down 4% today on the news.

Advertisement

What Happened With VMW Stock

The acquisition, should it happen, would help to diversify Broadcom’s business away from semiconductors and microchips and move it into enterprise software.

However, VMware could be a big pill for Broadcom to swallow. With a current market capitalization of $50 billion, VMware would be Broadcom’s biggest-ever acquisition. Broadcom tried to buy mobile chipmaker Qualcomm (NASDAQ:QCOM) for $103 billion in 2017. Former President Donald Trump ended up blocking the deal over antitrust concerns.

Advertisement

Michael Dell is VMware’s biggest investor with a 40% stake in the company as a result of Dell Technologies (NYSE:DELL) having spun out VMWare last year. Private equity firm Silver Lake is VMware’s second-largest shareholder.

Why It Matters

Buying VMware would fit with Broadcom’s strategy to grow through acquisitions. The San Jose, California-based company paid $18.9 billion to buy CA Technologies and $10.7 billion to purchase of Symantec’s enterprise security division in the last four years.

Advertisement

But again, a purchase of VMware would be the biggest-ever purchase for Broadcom. If the acquisition is successful, it will help to diversify Broadcom’s business and give it access to cloud computing and enterprise software, key technology areas.

Broadcom’s main focus is making chips that are used in products ranging from mobile phones to telecommunications network. VMware would provide Broadcom with access to data centers that are critical in cloud computing.

Advertisement

What’s Next for VMware

Whether a deal for Broadcom to acquire VMware actually happens or not, the prospect of such a deal is enough to send VMW stock surging today.

Investors should keep a close eye on developments in the coming days with the caveat that should an acquisition not be formally announced, shares of VMware are likely to come back down to earth.

Advertisement

On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

More From InvestorPlace

  • Stock Prodigy Who Found NIO at $2… Says Buy THIS
  • It doesn’t matter if you have $500 in savings or $5 million. Do this now.
  • Get in Now on Tiny $3 ‘Forever Battery’ Stock

The post Why Is VMware (VMW) Stock Climbing 20% Today? appeared first on InvestorPlace.

Advertisement

InvestorPlace| InvestorPlace

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *