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Shares of Broadcom (AVGO) came under pressure Tuesday, as investors likely cashed in after the stock surged to an all-time high. But with the Club holding set to significantly bolster its cloud software capabilities through a long-awaited acquisition, investors not yet in the stock should see the decline as a buying opportunity. Broadcom’s $61 billion stock-and-cash deal to purchase cloud software vendor VMWare (VMW) is set to close Wednesday, after Chinese regulators on Tuesday granted approval with a few strings attached. Those conditions include limitations on Broadcom’s ability to bundle its hardware and VMWare’s software in the Chinese market. Shares of Broadcom fell more than 1% Tuesday, to around $983.70 apiece. AVGO YTD mountain Broadcom (AVGO) year-to-date performance. “The people who are selling [Broadcom], what they are doing is they’re just saying, ‘This stock just went up 100 points in advance of this, so let’s lock in a profit,'” Jim Cramer said Tuesday. “I don’t think there’s anything wrong with Broadcom at all.” He added: “Let’s say you didn’t belong to the Club, and you were trying to figure out what name to work on, I would suggest you take a look at Broadcom.” Broadcom stock — which closed at an all time-time high of $995.71 each on Monday before pulling back Tuesday — has soared more than 80% since the semiconductor firm first announced the agreement to acquire VMWare in May 2022 . VMW YTD mountain Broadcom’s year-to-date stock performance. VMWare shares fell around 4.5% Tuesday, to $143.20 each, bringing the company’s stock closer to the cash-consideration level spelled out in the merger agreement . Broadly speaking, the deal entitles VMWare shareholders to receive $142.50 per share in cash, or have the opportunity to swap their stock for shares in Broadcom on a pro-rated basis. The Broadcom-VMWare deal had previously been scheduled to close Oct. 30, but was delayed while the companies awaited clearance from China’s competition authority. The company on Tuesday said it had now received all necessary regulatory approvals to seal the deal. Broadcom management had been adamant Beijing would eventually approve the transaction, despite investor concerns that rising U.S.-China tensions on technology policy could throw a wrench in those plans. Jim has long argued Broadcom was in a win-win situation with VMWare — either it would be able to buy the company and boost its software revenue stream, or take the money that had been earmarked for the acquisition and redeploy it to buy back stock. Now, with VMWare soon under its roof, Broadcom’s sales will be split roughly 50-50 between its conventional semiconductor business — which is seeing a lift due to artificial-intelligence adoption — and software, which tends to garner higher-margin revenues. As a result of the transaction, Jim argued investors may eventually assign a higher earnings multiple to Broadcom stock, which could help boost its price over time. Broadcom also has been known to increase the profitability of companies it acquires, including CA Technologies . “I think [Broadcom CEO] Hock Tan is going to lay out a vision that will be fantastic,” Jim said Tuesday. VMWare, known for its virtualization software used in the cloud-computing industry, is expected to bring in total annual sales of $13.9 billion for its fiscal year ending in January, according to analyst estimates compiled by FactSet. For its part, Broadcom has a diversified hardware business that includes networking chips used inside cloud data centers. In its fiscal year ended in October, analysts expect the company to deliver revenue of $35.8 billion when it reports on Dec. 7, according to FactSet. Our investment in Broadcom — we initially took a stake in August and added to it four times since, most recently in early October — is rooted in large part on its opportunity to benefit from the wave of investment in AI infrastructure, which should be further bolstered by the VMWare acquisition. (Jim Cramer’s Charitable Trust is long AVGO. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
A sign is posted in front of a Broadcom office in San Jose, California, June 3, 2021.
Justin Sullivan | Getty Images
Shares of Broadcom (AVGO) came under pressure Tuesday, as investors likely cashed in after the stock surged to an all-time high. But with the Club holding set to significantly bolster its cloud software capabilities through a long-awaited acquisition, investors not yet in the stock should see the decline as a buying opportunity.
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