Can Broadcom's VCF Bet Aid Infrastructure Software Revenues?

Broadcom’s AVGO strategy to push VMware Cloud Foundation (VCF) to the forefront of its infrastructure software business is delivering. In the second quarter of fiscal 2025, the company reported $6.6 billion in infrastructure software revenues, up 25% year over year. This growth underscores Broadcom’s success in transitioning enterprise customers from perpetual vSphere licenses to full VCF software stack subscriptions, positioning the platform as a key driver in the private-cloud market.

Broadcom expects this strength to continue, with third-quarter fiscal 2025 infrastructure software revenues projected at $6.7 billion, representing a 16% year-over-year increase. The launch of VCF 9.0 on June 17, positioned as a “modern private cloud” platform, further accelerates this growth. With upgrades in deployment efficiency, governance, cost optimization, AI readiness and edge scalability, VCF 9.0 enables unified operations across virtual machines, containers and AI workloads.

The shift toward on-premises private cloud modernization is accelerating and enterprises are turning to VCF to strike a balance between control, cost and innovation. Broadcom’s infrastructure software strategy is riding that wave. Currently, 87% of its 10,000 largest customers have migrated to VCF, signaling confidence in Broadcom’s vision and the growing demand for unified environments that can handle both traditional and next-gen workloads.

This surge in VCF adoption has fueled double-digit annual recurring revenue (ARR) growth across Broadcom’s infrastructure software portfolio over the past 18 months. The shift toward a subscription-based model with a unified cloud platform is helping Broadcom capture recurring revenue streams while becoming integral to enterprise IT modernization.

Broadcom’s Strength Tested by Fast-Moving Rivals

As the semiconductor sector evolves rapidly, Broadcom finds itself facing heightened competition from fast-adapting and innovation-driven rivals, including NVIDIA NVDA and Marvell Technology MRVL.

NVIDIA is a dominant force in the semiconductor industry, primarily due to its leadership in GPUs used for AI, machine learning and high-performance computing. NVIDIA’s key competitive area against Broadcom lies in AI data centers and accelerated computing. NVIDIA's CUDA software ecosystem and proprietary AI models provide a major competitive advantage, tying developers and enterprises to its platform.

Marvell Technology competes with Broadcom in networking, storage and cloud infrastructure, particularly in data centers, HD storage drives and 5G. Both are top SoC providers, but Marvell stands out for its agile delivery of ASSPs and custom silicon tailored for cloud giants like Amazon and Microsoft. Marvell’s strengths lie in rapid innovation, strong cloud partnerships and growing presence in automotive and enterprise 5G infrastructure.

AVGO’s Price Performance, Valuation & Estimates

Shares of Broadcom have returned 9.2% year to date compared with the Zacks Electronics - Semiconductors industry’s growth of 5.1%. AVGO has also outpaced key rivals, with NVIDIA rising 7.2% and Marvell tumbling 35.8% over the same period.

From a valuation perspective, AVGO appears overvalued, trading at a forward price-to-sales ratio of 16.85X, higher than the industry average of 8.18X. The company carries a Value Score of D.

The Zacks Consensus Estimate for AVGO’s fiscal 2025 earnings has inched up by 1 cent over the past 30 days to $6.63 per share, indicating strong year-over-year growth projection of 36.14%.

AVGO stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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