Broadcom (AVGO) has become one of the AI trade’s big winners, with the stock up 75% over the past year as investors bet aggressively on its custom AI chips. But beneath the AI narrative, VMware has become the financial backbone supporting that valuation. See a Closer look at AVGO’s software business.
Broadcom has built a software business with exceptional pricing power, capable of pushing through rate increases of 4x to 5x while leaving most customers with limited near-term alternatives. In FY2025, software revenue reached $27 billion, roughly 42% of total sales, growing 26% year-over-year. The segment posted 93% gross margins and close to 80% operating margins, compared to the chip division’s roughly 50% operating margins.
That cash flow matters. While AI chips drive the growth story and investor enthusiasm, the software business supplies the stable, high-margin earnings base underwriting Broadcom’s aggressive AI expansion and premium valuation. Broadcom currently…
